Knowify had what many SaaS startups dream about: an offer of VC funding.
But the project-management software company’s response was less than enthusiastic: A firm “no thanks” sent the big money packing, leaving CEO Marc Visent to grow his company as he pleased and keep all his equity for his team.
“Some companies are a perfect fit for a Series A, and some companies are not and need other funding options,” Visent recently told Lighter Capital CIO Allen Johnson.
For Knowify, the ideal funding for the company’s early stages was revenue-based financing from Lighter. This kind of funding mechanism doesn’t demand sky-high growth, instead supporting slow and steady company development through targeted investment.
“We are not the classical startup that burns hundreds of thousands of dollars a month,” says Visent. “We have a different approach to market. We try to grow as fast as the market can take it.”
Matching a startup’s growth to the receptivity of the market instead of to the demands of ROI-hungry funders is a good way to set up a sustainable — or “lifelong” — tech business.
The classic tech dream involves explosive growth leading to a lucrative sale (followed by Mai Tais on the beach).
But what about those who’d prefer to grow an enterprise over the long haul, slowly building something that can indefinitely support those who have worked so hard on it?
This latter scenario might look like a SaaS business with $10M in revenue with $2M per year in profits and no outside investors.
Doesn’t sound too bad, right?
But tech entrepreneurs are usually told that’s not good enough. Instead, they’re encouraged to raise VC and shoot for the moon. Shooting for the moon might result in landing successfully in outer space, but it’s more likely that it’ll end in engine failure before reaching orbit. Companies that aim only to “go big or go home” increase their chances of ending up with nothing at all to show for their efforts.
Meanwhile, those who aim to slowly and steadily build something solid are likely to end up with a dependable source of income (not to mention pride and satisfaction) that can last throughout their lives.
Wistia, a video software company, recently raised debt to buy out their angel investors for this very reason. The company has $32 million in revenue, and is still growing. However, the founders weren’t willing to take VC funds to grow at a rate they deemed unsustainable.
Johnson emphasizes that VC money isn’t the wrong choice for every company; it’s just not the right choice for every company either.
“I don’t want to be anti-equity, but it comes down to understanding what you want for your business,” he told Visent. “So many companies in this country have been built with equity investments. But not everybody’s going to be Facebook or Airbnb… It’s really about understanding the path of your business, what you want to do, and what makes sense for your business.”
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