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Nerd Out on Business

What is "seedstrapping"?

Published 9 months ago • 2 min read

Six years ago, I sat in a Barnes & Noble, attempting to write a blog post for my SaaS product’s email newsletter. However, I was distracted…

I glanced at the company’s bank balance, and it wasn’t trending favorably.

About a year into the journey of launching my SaaS product, we generated approximately $250k in ARR.

A few months prior, I had made my first hire: an exceptional software developer.

Realizing we needed more product-building capacity, I brought on a second developer.

Our expenses began to soar. I was trying to balance them with our revenue.

Annualized Expenses:

  • Dev 1: $100k
  • Dev 2: $90k
  • Marketing (Facebook/Twitter ads): $30k
  • Misc: $30k

Our total expenses? $250k, annualized.

We were a fully bootstrapped SaaS company operating at breakeven, with a promising opportunity to double our revenue within the next year. All things considered, I was in an enviable position.

But there was a hitch.

I still juggled consulting work, stretching myself too thin. To truly focus on the software, I needed to step away from consulting.

Another issue? Our business relied on annual subscriptions, which were highly seasonal.

Sitting in that Barnes & Noble, my little SaaS venture was burning through $10-15k monthly, with just $50k left in the bank. Our peak sales season was still 4-5 months away. Juggling the software and consulting businesses, I felt ineffective.

A change was imperative.

I had always hoped to bootstrap this business, especially as our niche held minimal promise of scaling to IPO levels.

My ambition was to achieve $5-10 million in revenue with a team of 10 well-compensated individuals. At mid-7 figures of revenue, we’d generate at least 50% in free cash flow.

Then, reality hit: I had to reconsider my bootstrapper ethos and ponder raising funds.

A few days later, I aimed to raise $750k for a comfortable runway.

I approached my consulting clients with the proposition of investing in my SaaS product. With over 30 business owners in my niche, each boasting a net worth of $5-10 million, I thought raising $750k would be straightforward.

I was mistaken.

Securing this seed funding proved more challenging than expected. After at least five rejections from those I had presumed would invest, I scaled back my ambitions, settling for $300k.

This sum was raised at a post-money valuation of $5 million, costing me 6% of the business’s common stock.

I never intended to initiate another fundraising round. The goal was merely to ensure our survival, minimizing the risk of insolvency.

As the saying goes: You can’t thrive if you don’t survive.

When asked about bootstrapping my SaaS business, I now have to suck up my bootstrapper pride. The truth? I didn’t bootstrap.

I “seedstrapped” it, with a seed round-and-done methodology.

Roughly three years after those seed investments, I sold the company for a mid-8 figure sum.

Would I have preferred keeping that 6% equity? Hell yes!

But at that juncture, survival was the priority.

Sometimes, you have to swallow your pride and source external funding. But never let that overshadow the essence of your venture.

Your ultimate source of capital? Your customers. Prioritize winning over satisfied, paying customers over raising money.

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Nerd Out on Business

Helping you start and grow a bootstrapped or "seedstrapped" company

I launched a niche SaaS business in 2017 and sold it for mid-8 figures in 2020. I'm here to help you in your journey to achieve financial freedom while having fun doing so.

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