How one founder “bootstrapped” his way to a $250,000 loss
Just because you sold a business doesn’t mean you have the Midas touch.
Here’s one of many painful examples…
Oliver, one of my DQ partners, is advising a friend who’s raising money. The friend launched a consumer app in the fitness/outdoors space and onboarded about 3,000 users. Not a bad start!
The founder “bootstrapped” (I’ll come back to this) the business for the first >year, then raised $150K from an early-stage fund… It was the easiest money he’s ever got his hands on, apparently!
[N.B. I need to find more funds like this!]
But, things have started to plateau. He doesn’t have enough volume to monetise, and most pre-seed/seed-stage investors say the audience is too small and is growing too slowly.
The founder is down to his last few months of runway and things are looking bleak. Without stating anything publicly—and despite saying he’ll “never work for anyone else again“—he’s got one eye on the jobs market.
[I’ve said this myself… then found myself in exactly this position.]
Here’s the worst part…
When the founder said he’d bootstrapped the business. What he meant, in fact, was that he’d invested $250,000 of his own money into it!!
He’d sold his previous business, which gave him some capital, so decided he’d double down on what he’s clearly good at, i.e. building companies.
Ouch.
This is actually not that unusual. I know several people myself who’ve done exactly this. One spent almost $150,000 of his savings getting an app built, which never saw the light of day. Another (at last count) spent an incredible $500,000 “bootstrapping” his own super-app.
[“Super,” presumably because of the number of features it had, not because of the number of users.]
Exited entrepreneurs, if you’ve sold a business and are considering ploughing the fruits of your labour into a technology business, here’s something to ask yourself:
“How did your last company get from zero to meaningful cashflow, and is there an obvious correlation between that and what you’re planning next?”
If the answer is no, before spending any of that hard-earned cash, I’d recommend spending some serious time validating the problem, market need and solution.
It’s possible that you’re the only one who wants it.
