How to start a company without raising money
So you want to start a company. You’ve been thinking about it for ages, but you aren’t sure you want to go down the venture capital (VC) path. You have friends who have been burned in the 2021/2022 hype cycle, and, more importantly, you’re not even sure if your business requires VC.
I spent a good chunk of my career at one of the oldest venture capital firms in America. I met with founders in New York, California, and almost every country in Europe and evaluated businesses with no revenue and no product all the way up to those about to go public.
Then, I quit to bootstrap my own company. After meeting with several thousand founders as a VC, observing the market crash, and trying to build in a different way, I’m keen to share some thoughts from my personal experience thus far.
Who this post is for:
If you’re interested in building an application software, services, marketplace, or non “tech” business. If you have an idea but don’t have a cofounder, a deep technical skill set, or lots of resources.
Who this post is not for:
If you're building a novel technology, for example AI chips, life-saving drugs, robots, renewable energy, or electric aeroplanes, ignore this post and raise tons of venture capital, grants, government funding and everything in between. You’ll likely need way more money than you think.
How to start a company without raising money
Save money: If you haven’t started your company yet, this may seem like old fashion advice but it was the single best piece of advice a friend gave me before I left my job. Save like hell. Having cash on hand extends your runway to live without a salary, test ideas and walk in the dark.
Consider keeping your job: General advice for founders is to go all in, quit and spend 100% of their time on something. This helps get you into the weeds but it's financially difficult. How can you pay rent without an income source? You can accomplish a lot more on nights and weekends than you think.
Don’t raise money: The better the school you went to, the sexier your current job is, the easier it will be for you to snap your fingers and raise. Don’t do it. Why? Because if you don’t have product market fit (ie, lots of paying customers), raising VC prematurely can shoot yourself in the foot. You suddenly owe people money without any clue how to pay them back. And, you don’teven know where to spend the money. Even scout programs at venture funds come with strings attached. While these checks may seem harmless enough, their money comes with legal obligation: they will have a claim to anything you build. If not raising means you slow down the pace of building your product, then slow down. Often the person who wins is just the last man standing.
Bum off your network: If you are in a relationship with a high earning partner, use this to your benefit. If you have a loving family with a big home with nice wifi and great workspace, give up your expensive city apartment and live cheaply there instead. Bootstrapping requires an ego check. Asking for help from friends and family is one of them.
Give yourself a timeline: This is the hardest part of entrepreneurship and raising money in some ways makes this even worse. More money means more time, and time gives you a false sense of security. Its difficult to say, but my guess is finding product market fit takes time most people need 6-12 months, maybe longer. Pick a date and if you haven’t found a minimum number of paying customers by then, do something else.
Lean into your natural strengths: This is a generic piece of advice for all founders, venture backed or not, but it still holds true. If you are a solo-preneur or small team, just do what you are good at and be bad at everything at else. Play to your unfair advantages. Your dad has a construction company and you want to start a contracting firm? Use it…abuse it. You are a whiz at coding but suck at branding? Build a great product with a crappy brand. Etc.
Find new friends: Try to avoid hanging out with people in YC and other VC tracked- incubators. These programs have only one goal: to position their companies to raise a big Series A round. The whole process has been compared to a broken factory treadmill, and even for the truly venture companies, its not working. Instead, find new founder friends. A big part of why I wrote my first article on this substack was because I was and still am looking for a community of people seeking solutions, not capital.
Build something you care about: Something strange happens to a type-A young person who is asked to sell an idea for $1m in cash. Suddenly the game becomes finding the right idea to raise, but it can also lead to misalignment. What would you build if you could build truly anything in any industry? The industry you actually care about, not because some gartner hype cycle analysis tells you there is an opportunity, but because you have a visceral, emotional connection to it. For me, moving into the hospitality industry has yielded an unexpected benefit: some of the best friendships I’ve ever made. Now, I’m learning that building something you actually care about is a superpower, in part because its just so much fun.
None of the things written here will prevent you from raising money in the future, in fact, a somewhat open secret among venture investors is that they get ridiculously excited to meet capital efficient, bootstrapped companies.
I’ll never forget the meetings we had with those bootstrapped entrepreneurs. Truth be told, I was jealous. They had the power to choose. What a powerful feeling that must be.