We are currently headed toward our 4th year in business. We had 11 straight quarters of profitability with a 148% compounded growth and are approaching 4M in revenue for the year. We have spent the last 4 quarters investing our retained earnings in infrastructure and posted losses. We have boot strapped our way here and have no outside investors. Our growth going forward is going to be dependent on the amount of cash we can raise, So the question is should we start with a VC or seed fund?
Thanks for reading and replying
I don't think I've ever seen a startup with such revenues being considered a seed, nor can I remember a seed fund that accepted startups with such revenues (those I've seen usually specify a 1M limit), nor have I seen many seed rounds raising more than a couple hundred thousand, which is probably much less than you need. I'd go with VCs in such a case, no question.
That being said, this applies only if your eventual plan is to make an exit (and a big one), otherwise going to VCs may well be a waste of your time - they are mostly (if not only) interested in exits. If your plan is to remain a private company for the foreseeable future, and if your revenues are stable (or growing), then you should consider alternatives, like a bank loan.
For sure not seed capital. VC maybe, alternatively, work out ways (in the similar manner to your bootstrapping) to grow a bit further.
Consider a Board of Directors, and depending on your situation, an Advisory Board..
What is your growth potential? -- Do you look at exist (or partial exist options)...Any specific reasons why you are looking for Venture Capital?
Remember the following rough guidelines:
Seed funding: Expect 10x return in 18 months.
Venture Capital: Expect 3x return in <5 years
Corporate Investment: 10% return
I think Eric has a point about scalability if you insist on using your in-house people instead of evolving to a solutions platform (think Uber for your space) that can maintain standards, scheduling, and have a source of labor in each market. Only looking at your site and having a passing understanding of the Angie's LIst/Porch/Home Advisor space you may be better off growing organically (read all you can about MailChimp for a tech related version of ignoring the venture community). Setting aside scalability (although you have to resolve that or a professional investor will not touch this) your revenues are growth stage VC targets (BTW - Seed and VC are the same - The difference is the round and what type of VC makes those investments). At early/growth stage, you have a proven model (see scalability issue) that can now be copied and repeated in multiple locations. Early/Growth VCs are investing between $1 mm and $5 mm as a target. You will need a tight use of proceeds to show them how going negative (your precious profitability) will grab market share and turn positive before it runs out. I agree you need an Advisory board of a Board of directors to assist you here. By the way - well done on the results so far.
Congratulations on all that you have accomplished.
As to your funding question, based upon the information given, I would say neither. You seem to be past the seed stage and you may have a tough time finding a "fit" with typical VC firms.
i think you will need to look at some other funding strategies to find the one that fits your needs.
If you want to discuss your specific situation, feel free to contact me directly
In reading where you are the place to plan of funding is at the concept phase. Having a solid business plan that shows the predicted growth and have that vetted out by potential investors is important. That being said you may still attract investors by creating that business plan now. Making a profit and spending all that on infrastructure is a signal to anyone that is poor planning. Staying profitable is key in sustained growth that with a great business plan may be enough to get an investor audience. If you are out of money this is going to be a real challenge. Good Luck I see a lot of business who captured a lot of business that drove them out of business.
Can't agree more with Dimitry. Also think about how much this business will scale and how ambitious you are. If you are willing to scale this to 100's of millions and controlling/owning a smaller part of it - then VC funding is the way to go (you are not seed stage anyways). If you think your business will not scale as much (or you don't want to) then there is no point of giving away part of your company for money that cannot be used to make it really large - look for other funding sources.
Congratulation on getting to $4M and Profit - great accomplishment.
I would recommend you form a Board of Directors to help you study this issue.
Dimitry, thank you so much for that valuable feedback. That is the exact reason I asked the question on #cofounderslab. Thank you for making this place great. J