While it is not as sexy, it's worth noting that "funding" from customers is generally cheaper than funding from investors. Plus, once you have revenue, you generally become more interesting to investors and have more leverage in those conversations because you may not need the money to survive the way you do early in your company's life.
We're a "revenue-backed" startup so I'd say that if you can do it, it is a great way to control your destiny. The challenge with this method is that growth comes after revenue, i.e. you spend generally after you have sold the product which means growth is slower while fundraising allows you to spend ahead of revenue.
Revenue also opens the door for loans which can be a great if dangerous source of funding as you don't give up equity and can still scale slightly ahead of your growth curve.
Great point albeit unexplored by us. Are you talking about loans from traditional banks?
I've perhaps unfairly assumed traditional banks won't fund SaaS companies because of unfamiliarity with non-asset intensive businesses. Or that they'd require me to put up my house, wife and child as a personal guarantee?
Yep, traditional banks. As long as the revenue is stable enough you don't need a personal guarantee from a traditional bank. They can be just as intrusive as other investors and even require thinks like the company take out life insurance on key employees. But it is a real option you may want to look into.
Another option many small companies don't consider is net 30 - 60 day payments from key suppliers. You generally get a grace period after an initial bill and can often work out a deal where you either have say 45 days to pay while still being considered current OR get a discount if you pay within a week of getting a bill.
One company I worked with had the equivalent of a 60k loan from CDW due to the rate they where buying equipment plus the grace period.
Agreed. That's the type of startup I'd want to work for. While it's fun to watch the Groupons and Pets.coms of the Valley come and go, profitable /experiments/ are, IMO, much more interesting.
We're a "revenue-backed" startup so I'd say that if you can do it, it is a great way to control your destiny. The challenge with this method is that growth comes after revenue, i.e. you spend generally after you have sold the product which means growth is slower while fundraising allows you to spend ahead of revenue.
Nevertheless, good to see this advice on HN.