When to raise money or sell your company

1 The bottom line

Match your funding to the real ceiling of your business: bootstrap or raise small unless you can describe a billion-dollar outcome, and prepare early for the buyer who fits. The wrong capital, or a sale after growth slows, limits your options and your payout.

2 Key takeaways

• Raise venture money only if you can describe a billion-dollar outcome. Venture is built on outliers, and a wrong fit costs you years.
  • A founder with a few thousand dollars in MRR wanted to raise, but could only grasp at straws when asked how the company reaches a billion dollars Andrew Maguire, Volo Ventures37:25.
• Bootstrap first and raise later if the market proves bigger. You raise later at a higher valuation, with less dilution and better terms.
  • Visible raised $50,000 to pay rent for a year, added a small team of five, and reached about $7M revenue cash flow positive before a small Series A Luke Martin-Fuller, Visible1:02:08.
• If you raise, take less money and keep the terms clean. Every extra dollar costs equity, and heavy preferences can wipe out your payout.
  • Savvy Navvy targeted 125,000 in its first round and closed it after 6 days at about 370,000 to avoid losing too much equity Jelte Liebrand, Savvy Navvy24:40.
• Sell the growth story, and sell before growth slows. Buyers pay for the future run rate only while the future still looks big.
  • MyFitnessPal sold to Under Armour for $475M in 2015 while growing, then to Francisco Partners in 2020 for over $100M less after growth slowed Josh, Blue Throne43:23.
• Start preparing for acquirers long before you want to sell. Each buyer type wants a different story, and relationships take time.
  • Start building the buyer relationship 6 to 12 months ahead Josh, Blue Throne38:35.

Just align the capital strategy to reflect what type of company you're trying to build.

Andrew Maguire, Volo Ventures

2.1 Find the real ceiling of your business

Your funding should match the best outcome your business can realistically reach.

• Match your capital to the realistic best case. Andrew Maguire, Volo Ventures39:55
  • Some businesses can become massive with great execution. Others cannot, however well you execute.
  • Count your time in years of your life, not just cash.
  • If you plan to spend five to ten years on something, know the best case before you choose capital.
• Ask how the company sells for a billion dollars before you take venture money. Andrew Maguire, Volo Ventures37:25
  • Venture is built around the power law, so investors need outliers.
  • If you cannot answer, and that outcome is not your sole focus, venture capital will limit your options and make your life miserable.
• Treat VC as a fit for a particular set of businesses, not a default. Jelte Liebrand, Savvy Navvy21:03
  • VCs invest repeatedly and want you to spend it all to grow fast, so they own more at exit.
  • Angels are often retired, want the business to succeed and bring expertise in a vertical they know.
  • Liebrand's first advice to founders is to not raise at all if they can avoid it. Savvy Navvy walked away from a VC term sheet after friction over what each side wanted.

2.2 Fund it with the least capital that works

Bootstrap first, and when you need cash, pick a source that fits your product.

• Build a cash-flowing business first, then raise only if a much bigger market appears. Andrew Maguire, Volo Ventures38:58
  • Aim for a business of around $10 million, then raise only if you find a multi-billion dollar opportunity.
  • If the big market never appears, you still own the whole business.
  • Curtis from Slups bootstrapped to about 12 people, reinvests every year and is happy with the result.
• Raise only what you need, from people who believe in the mission. Luke Martin-Fuller, Visible1:02:08
  • Huge sums create pressure to spend and to deliver an enormous outcome.
  • "If you're raising that kind of money, you're expected to spend it."
• Crowdfund equity from the users you already have. Jelte Liebrand, Savvy Navvy18:10
  • Use a platform such as Seedrs (now Republic) or Crowdcube. Launch with a video, financials and a pitch deck.
  • Agree the valuation with a few angels first, then everyone else joins at the same terms.
  • Most of the round comes from a handful of angels, and a long tail of small investors fills the rest.
  • With 10,000 users, the first campaign was oversubscribed within 24 hours and closed in 6 days at triple the target. Savvy Navvy now has about 2,500 investors, with rounds mostly around the million mark.
  • Small investors who are also customers can act as an advice network18:59. The team has asked them for logistics and marketing help several times.
• Finance user acquisition from each cohort's earnings instead of selling equity. Andrew Maguire, Volo Ventures47:27
  • General Catalyst's growth fund finances up to 80% of user acquisition, tracked by monthly cohort.
  • It is non-dilutive and not a recourse loan, so you are not personally at risk like putting spend on a credit card.
  • If you spend $10 million in January, they finance $8 million at roughly 10% annualized interest, and repay from that cohort even if it takes three years.
  • It is currently open only to larger, proven apps, but smaller versions could exist.

2.3 Set your limits before you raise

Decide your range, valuation and terms before the first pitch, then sell investors on the future.

• Set a minimum, a maximum and a sensible multiple, then stop at the maximum. Jelte Liebrand, Savvy Navvy24:40
  • Raising means selling part of your business, so a bigger round gives up more equity.
  • Set a bare minimum that covers the next 12 to 18 months, and a hard maximum at your agreed valuation.
  • Agree the valuation with a lead investor, and keep the multiple sensible37:04. A 20x revenue multiple would look like nonsense for a consumer app, and risks such as black swan events show up in the price.
  • Savvy Navvy's last round raised almost $700,000 at a $15 million valuation. That is roughly 3 to 4x revenue, against about $3.5 million B2C ARR and over $2 million B2B.
• Refuse any liquidation preference above 1X. Andrew Maguire, Volo Ventures39:09
  • Preferred stock means investors get paid first in downside sales, so a higher valuation does not mean a better founder outcome.
  • A 2X or 3X preference can leave founders with little in a modest sale.
  • On a $20 million Series A, if you sell for $20 million, the investors get all $20 million.
• Prove you have distribution before you pitch. An (Anup), Flame19:20
  • Investors looked at the strong retention, then asked how the product was distributed. With no answer, there was no second meeting.
  • Spend real time unlocking a distribution channel before you go to raise.
  • Meetings with tier-one investors ended without a term sheet, so the team monetized to survive.
• Pitch where the market is going, and show revenue growth as proof. Koby Conrad, Sunflower42:20
  • The deck that raised money described where the market is going and showed product-market fit. It positioned Sunflower in AI and showed revenue going up rather than usage.
  • It also included letters of intent from pilots.
  • The first deck leaned on the founder's background and usage numbers, and it mostly failed. Sunflower has raised about $6.5 million in total, with Flybridge leading the seed.

2.4 Build the story a buyer will pay for

Buyers pay for growth, and each buyer type wants a different story.

• Sell while growth is still ahead of you. Josh, Blue Throne43:23
  • Fast-growing, profitable apps (30 to 50% EBITDA margin) are valued on future run rate, up to 6x. Slower apps are valued on the last 12 months.
  • Do not try to time your peak. Let the buyer pay for the peak that is still ahead.
  • Go to the table with other options so you are not forced to sell. "Sell before you need to."
• Work backward from the exit number you want. Josh, Blue Throne7:46
  • For a $100M+ outcome, a growth story needs only around $17M ARR at a best-case 6x run rate.
  • A past-performance story valued on the last 12 months needs around $30 to 33M ARR.
  • Fast growth roughly halves the revenue needed for the same exit. "People are paying for the growth story if you can have one."
• Pick your likely buyer type and build the narrative for them. Josh, Blue Throne38:35
  • Aggregators or platforms want recurring revenue, clean books and room to 10x. Strategics pay the highest multiples for synergies.
  • Private equity wants predictable cash flow, and the founder usually stays 3 to 5 years. Acqui-hire or IP buyers are rare for consumer apps.
  • Read the buyer's last five deals to learn why they bought, then build the metric story they want.
  • Strava bought Runna as the top of its funnel for beginner runners it was losing. MyFitnessPal likely bought Cal AI's distribution skill.
  • Ask the buyer which skills moved the needle42:32 on past deals: ads, price testing or product features. Then pitch your strength, such as a distribution engine, as the complement to their retention work.
• Post publicly about your app so acquirers can find you. Caleb Dean, Runafy43:50
  • Caleb tweeted often about Runafy, saying he would hit 100K a month, from an account with only about 200 followers.
  • A buyer's advisor found him a week or two after launch and later sent a cold DM.
  • Public confidence and a clear niche fit with the buyer's wellness app studio drove the premium.

2.5 Run the sale without losing the business

Choose to sell on purpose, keep your focus on customers, and protect yourself against the other side.

• Know why you are selling, such as cutting platform risk. Alex, Boost App Social36:36
  • A business that relies on paid ads alone can be wrecked by bans or CPMs doubling. Profitability depends on a loaded-dice game of statistics.
  • Alex sold partly to take chips off the table, and now mixes organic growth in Screens.design.
  • Boost App Social sold for seven figures in January after a four to five month negotiation.
• Take inbound calls selectively, and use an investment bank if your team is lean. Brett Bauman and Zack Hargett, Coconote35:24
  • Most inbound M&A conversations are not a good use of time. Take the call only if you respect the company and are ready.
  • Ask for a ballpark range early.
  • If you commit to selling, a banker keeps you focused. An M&A process risks taking your eye off customers, building and marketing.
  • Coconote used Creative Partners. Inbound strategic interest started when the app was a couple of months old, and Quizlet acquired it about 18 months after launch.
• Keep talks confidential and keep running the business. Brett Bauman and Zack Hargett, Coconote1:00:05
  • Losing focus shows up in the negotiations, so keep building and growing.
  • They told neither the team nor, in detail, their families until close. Deals tend to fall apart in the last week, so shielding others reduces noise.
  • Revenue roughly doubled during the deal process, and the deal closed in December. "I think a great leader shelters other people."
• Protect the deal when the buyer is unknown. Alex, Boost App Social34:40
  • When selling to a secretive private equity style buyer, Alex hired a lawyer qualified in Europe and the US.
  • The deal used a roughly 100-page contract and a Singapore escrow.
  • He also spoke to another founder who had sold to them, found through the broker.
  • Negotiating without a rush gave strength. Legal work took 1.5 to 3 months of the process.

2.6 Sell an early app without leaving value behind

Even with almost no revenue history, you can price the app from trials and keep a stake in the upside.

• Estimate MRR from trials when you have under a month of revenue. Caleb Dean, Runafy46:20
  • With about 26 days of revenue and 20 to 30 seven-day trials about to convert, the buyer applied the trial success rate to estimate MRR.
  • That gave roughly 3K MRR, valued at around 4.5 to 5x ARR.
  • Due diligence was just verifying App Store Connect and checking that users were not bought. It took a couple of days, with six contracts negotiated and funds sent via escrow.
• Keep equity when you sell an early app to a buyer who adds resources. Caleb Dean, Runafy47:17
  • Caleb kept 30% of Runafy, plus a 6-month cash earnout and a cash bonus.
  • The buyer added developers, a distribution team and capital for influencers, UGC and paid.
  • The deal was reported at roughly 100K to 180K valuation, and the sale funded his next app.

2.7 Where they disagree

Sources split on how public to be, whether to hold equity after a sale, and whether growth is the goal at all.

• Stay quiet, or go public.
  • Visible did not announce its raise, because members do not care and a press article could surface in search by people looking for a solution Luke Martin-Fuller, Visible1:02:08.
  • Caleb Dean's post about selling the company reached about 586K views Caleb Dean, Runafy43:50.
  • Public posting fits a solo app seeking a buyer. Quiet fits a business whose customers could stumble on the news, and a team that a live deal could distract.
• Take the cash, or keep a stake.
  • Blue Throne says to sell while the buyer can still pay for growth ahead Josh, Blue Throne43:23.
  • Caleb Dean kept 30% because "you're better off having 10% of a watermelon rather than like 80% of a grape" Caleb Dean, Runafy47:17.
  • Keeping a stake fits a small early app where the buyer adds real resources. A fuller exit fits a business facing platform risk.
• Chase growth, or maximize profit.
  • Maguire says to align capital with the realistic ceiling, and treats venture as right only for billion-dollar outcomes Andrew Maguire, Volo Ventures39:55.
  • Cohen says "maybe growing forever isn't the goal actually or growing revenue isn't." Some companies shift to maximizing profit, like 37signals and other bootstrapped firms whose founders are paid well Jason Cohen, WP Engine1:19:04.
  • Cohen adds a warning. Stagnation for years can still be bad for the people, so check whether the founder and the team are fulfilled.