How to Decide Whether to Raise Money or Not

And what I decided recently for Megaphone

Hey y’all — after I made this post a few people reached out about investing in Megaphone.

I hadn’t thought about it much until then.

In fact I’d intentionally not thought about it, and didn’t want to until I had to.

My last company needed venture funding to get off the ground, but this time that hasn’t been the case.

But the sudden interest forced me consider it.

Here’s how I thought through the decision, and where I landed:

How to Decide Whether to Raise Money

The 3 Ways to Build

When you become a founder you can choose to build one of three ways.

Establishing these is important since it will impact if, when, and how you decide to raise money.

  1. Traditional Business → This can be an agency or a restaurant. It’s a business that will never reach venture scale. More importantly for our definition, it isn’t intended to and has no aspirations to. It typically requires profitability much sooner and is intended to generate cashflow.

  2. Silicon Valley Small Business (SVSB)As brilliantly outlined by Anu Atluru last year, this is an emerging middle-ground where scalable businesses are built with “small business values but Silicon Valley ambition.” You can loosely equate this with the bootstrapping movement, though some investors like Josh Payne are funding these companies. There’s not really a good name for it today.

  3. Startup → In his essay Startup = Growth, Paul Graham reserves the name “startup” for a company that is “designed to grow fast” and compares a startup’s growth to a redwood sapling, while a traditional business is a bean sprout. Not only does it become bigger, but it is built differently. I’ve always found this to be true, even if it’s easier colloquially to refer to other types of businesses as startups too.

I started Megaphone as a SVSB — I’m investing heavily in building the product up to support considerable scale, but with a philosophy of frugality where every dollar is valuable. We’re not hosting or sponsoring any NY Tech Week events.

When to Decide

There are two schools of thought for when a founder should make the decision about whether to raise money or not (regardless of when the fundraise actually happens):

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