I turned down a US$100 thousand investment
One year later, I raised US$1 million
You probably already have read stories about entrepreneurs raising a lot of money. If you have a startup, something natural to do is to look for money to grow your business.
But how do you know when is the best time to raise money?
When should you accept and turned down proposals?
As you saw in the title, I turned down a US$100 thousand investment, and one year later, I raised US$1 million. How did I do that?
I’ll tell a quick story that will answer those questions.
I had the opportunity to participate in two accelerator programs that helped my gaming startup to grow.
The first one was Startup Chile, an initiative from the Chilean government. It helps companies with US$40,000 (equity-free), working spaces, and mentoring. I lived there for seven months (from November 2014 to June 2015), and I tried to work 100 hours per week to transform my startup into a profitable one.
I tried to work 100 hours per week
Do you need that for your startup to succeed?
joaovsouza.medium.com
The second opportunity I had was Game Founders, an accelerator program focused just on gaming startups. Besides helping companies with working spaces and mentoring, it invests money (US$15,000 for 9% equity). The program started in Estonia and moved to Malasia a few years later.
Before Startup Chile, I met with Rovio’s Chief Marketing Officer (creators of Angry Birds). He told me it would be good for my startup if I join the Game Founders program. I applied, but we weren’t accepted.
After the Startup Chile program, I had a profitable startup with better traction to share. I applied again, and this time we were accepted.
I moved to Malasia and lived there for three months (from September 2015 to November 2015). During this period, we were able to grow our company even more.
Back in Brazil, I saw that Startup Chile had created a new initiative focused on profitable startups that already have been through the program. This time it would help with US$100 thousand (free equity again). You would have to prove that you have been through the program and had a profitable startup. You had to incorporate in Chile to get the money, but you didn’t have to move to Chile, which was good for me.
We started the incorporation process in 2016, but then something changed. The founder now had to move to Chile. That broke my heart. I didn’t want to move to Chile again.
All of this reminded me of the sunk cost fallacy. It’s not because you started investing in something that you have to keep investing. We had invested money to incorporate the company in Chile. Maybe because of that, a lot of people would go on with the program. But we didn’t.
I had to go through a lot of bureaucracy for the first stage of the Startup Chile program. I imagined that the same would happen for this second stage. I was ok doing that but not ok doing that and moving to Chile.
I had live abroad twice in the last year. I had been far from family, friends, and my girlfriend for a long time. I believed that my productivity moving abroad again in such a short time wouldn’t be the same. Besides that, we were making money. We didn’t need the extra cash to survive.
I decided that I should turn down the US$100 thousand investment and stay in Brazil working on my startup. And that’s what I did. I kept working from my room in my mother’s home in Brazil (my startup was 100% remote) to make my startup grow. I was on fire.
We kept growing during 2016, and in the last quarter, we decided to try something different.
To make money with the games, we had to have users playing. For that, we needed to spend money on user acquisition. The problem was that our company credit card limit was too low. We wanted to spend more money but we couldn’t.
What we decided to do was to start using our personal credit cards. Then the ones from relatives and partners. That sounds good, but there was another problem. We had to pay for the credit cards before we were getting our money back (and profits) from our games. We didn’t have enough runaway to pay for all the credit cards. We decided then to pay for the ones from our relatives and partners while we figured something out.
Investing more money in user acquisition allowed us to grow our revenue. We broke revenue records for ten weeks in a row. We were making a lot of money.
During both accelerator programs in which I participated, I met with lots of investors and tried to keep in touch with them. Seeing all of our growth, one of them called us to talk at the end of 2016. It was almost Christmas. The talk was good, but nothing happened after that.
When 2017 started, we decided to go after investors again. We went to a business event in London in February. We had great numbers to show.
During the event, we received three investment proposals. That has never happened before with us.
One of the proposals was from the investor we talked to near Christmas the year before. We met him for the first time during our first week doing the Game Founders program. We were doing a pitch training session, and he saw our pitch there. As I participated in another accelerator program just a few months before, I had my pitch presentation ready and sharp. The investor liked what I showed him and said that he would invest US$1 million if we achieved specifics numbers.
It took us one year and a half to achieve those numbers.
Between the three proposals we got, we choose the one from this investor. We knew him more time than the others, and he had already been a mentor to me before. He would be of great help to the company besides the money.
That’s how we raised US$1 million.
It can be tempting to have an opportunity to have extra money for your startup. The most important thing you should do is to survive. After that, you need to think long term.
When I did stage one of Startup Chile, I needed the money to survive. For stage two of Startup Chile, I didn’t need the money to survive. I could think long term. My company probably wouldn’t have grown if I took the US$100 thousand thinking in the short term.
Sometimes you have to postpone something in the short term to get something better later in the long term.
It’s hard to know when to do that. You got to think about what is best for your startup and make a decision with calm. Talk to other people about that. Take a night or two to sleep on that.
Raising one million helped my company to grow even more. We had the runaway necessary to invest in user acquisition and to hire more people.
But remember, raising money is not the end. It is just the beginning.
