Yesterday, @CircuitApp hit $3M in ARR, ~12 months after crossing $1M! 🥳🚀
We've done this without raising traditional VC, here's how: Thread 👇
We've done this without raising traditional VC, here's how: Thread 👇
We started Circuit with a ~£25k loan provided by the founders, enough for us to outsource what we needed to, and enough to spend small amounts on paid ads where it made sense.
We only ever spent on ads where we had positive ROI, which meant in the beginning, £10-20/day on 20-40 installs, and charging from day 1.
There's a small amount of ad volume available at super low costs, but it's enough to validate, iterate, and improve upon your product offering and monetization. I’d highly recommend this approach when getting started if it’s possible in your case.
As the product got better, we could afford to tap into more and more volume profitably, this cycle of increasing ad spend -> better product -> increasing ad spend continued over the course of a year, and was enough to kickstart organic growth through WoM.
As our customers began to stick around for longer, our payback period also began to increase, putting pressure on the now £25-30k we had in the bank, and forcing us to tune the ad-spend down to prevent us running out of money in the short term.
Here we could have benefited hugely from a small cash injection. We didn't need to raise an entire Seed round, but we did need to figure out how to unshackle ourselves from the lack of working capital that was holding us back from further speeding up the cycle.
We were able to weather this storm by deferring our own founder salaries where needed, which worked fine until our salaries weren’t relevant anymore - our own salaries were slowly becoming a drop in the ocean compared to our ad, employee, cloud, and service expenses.
Our monthly expenditure was increasing much faster than our bank balance, getting to the point where despite being profitable, working capital requirements left us in situations where whilst waiting for due payments, we had just ~3 days remaining before we ran out of cash.
Waiting on the single, monthly payments from Google and Apple's app stores became the single most stressful part of the month, these payments can come anywhere in a 7-10 day window, and often the end of the window was too late.
Going to #techstars enabled what I now refer to as our "Semi-Bootstrapped" approach to fundraising, we've now raised 6 figures from Angel investors we've met along the way, but despite raising this money, we haven't burned a single $.
That raised capital is either sitting in our bank, or is deployed as part of our ever-increasing working capital requirements (which now extend way beyond just ad spend). Enabling us to continue to reinvest 100% of our profit back into growing Circuit further.
Because we raised so little, and from those who we’d built up a relationship with, we were able to raise in such a way that allowed us to continue with the approach that has served us well so far.
We only raise as and when we need more working capital. We raise on a convertible note with a fixed valuation, and we have no immediate plan to raise no institutional money, which means no board seats, no veto or control rights and no misaligned incentives.
For investor’s protection, we include a term that means if in the future we do raise institutional capital, they’ll get the same preference shares allocated in that round, but otherwise, they get common stock - just like the founders.
We build relationships with our investors in advance. Ideally we have a group ready to invest in advance of when we need it, so that when we do raise, it’s done quickly and efficiently, so we can react to opportunities that present themselves.
Like many, I firmly that in the majority of cases, bootstrapping does cause you to leave growth on the table, and can even lead to you taking more (but different) risk than raising VC would in the first place.
But I also believe that VC can lead to misaligned incentives, and requires you to “play the game” in order to do so effectively, even if the rules of the game aren’t 100% aligned with what’s best for your particular company.
Ultimately, I think the current best path for us and many other SaaS companies actually lies between being bootstrapped and raising traditional VC, rather than sticking to one or the other.
If you’d like to follow along with our journey, join the 500+ other angels, operators, and VC’s receiving our monthly updates here: jackunderwood.typeform.com/to/nHqUTF
