Open Linkedin and have a scroll. Likely, your feed will be inundated with fundraising announcements. Raising money just seems to be the thing for new founders to do. It feels like you’re meant to follow the well trodden path of pre-seed to seed, to Series A, and so on.
But is there another way? I’m CEO and co-founder at Volunteero, a B2B SaaS platform helping charities to manage volunteers more effectively, and people to get into volunteering.
We raised a substantial bit of money when starting out. But since then, we have decided not to raise any more. Here’s why we did that, and why you should do the same.
Getting started
We started in 2020 in the cliche startup mould. As three guys working nights and weekends from our bedrooms, we built a basic MVP for Volunteero. We gained some early adopters in the form of small local charities. We iterated, and began charging for the service.
In 2022, we raised a pre-seed investment round of £500k primarily from angel investors and some small pre-seed funds like Antler and Octopus Ventures. We built our team, improved the product, and grew revenue 8x from our pre-seed round.
It seemed like it was time to move up that ladder to the seed round. But we opted out of the VC merry-go-round, and have since been growing organically with the aid of programmes such as Innovate UK and CivTech Scotland.
This may not be the case forever, but it is the right approach for Volunteero for now. So how did we know that steering clear of venture capital was the right move?
To venture, or not to?
We knew VC funding wasn’t for us when we had to think about, and articulate, how we could become a billion-pound business in 7-10 years. Our answer? We couldn’t. It wasn’t realistic.
I knew that even if I somehow convinced myself and gained some funds, I would still have to face the reality and explain why the trajectory wasn’t there upon any future raise. This creates undue pressure to meet potentially unreasonable expectations for your business.
VC funding can also do more harm than good. We love our startup, our mission, and our team. I think these facts became key drivers of our decision not to raise more money.
If you raise VC money, you typically give away a significant equity stake in the company in exchange for their investment. It’s kind of like you’re betting the house. For some that makes sense, but for us, the risk just wasn’t acceptable.
Honestly, we had never considered a world where we don’t continuously raise money. Once we did, the alternative seemed so much more appealing. It helped that we also knew plenty of great businesses that were built without VC funding. Brands like Mailchimp and GitHub. One day, we hope to add Volunteero to that list.
The reality is, if you are building the next grocery delivery app or AI SDR, you’ll probably struggle without raising a lot of money and fast. But so many businesses don’t fall into these ultra-crowded, “winners take all” types of businesses. We don’t. Accepting that created the potential to keep costs down, focus on profitability, and grow efficiently.
How to fund a startup
So what can you do if you forego the drug that VC funding can represent? Here are six alternative funding routes that I recommend to new business founders.
1. Side hustle for as long as possible = the longer you can have some form of a steady pay slip the better. I believe the vast majority of business owners could, and should, be making revenue before the founders ever go full-time.
2. Hire part-timers = new founders cannot run the risk of hiring and firing fast, you don’t have the luxury. Instead, have people work for you similarly on a more part time basis alongside their full time gig, or make effective use of freelancers. You don’t have to dive head first in and go from zero cost to a £50k-100k monthly payroll cost.
3. Alternative compensation = can you use your share options to get people to work for free for a period of time? Or could you offer a high percentage, commission-only model to generate sales? Consider other methods of compensation (but remember to be super transparent in any worker contracts!).
4. Look for small business grants and non-dilutive options = grants aren’t guaranteed, but you’d be mad not to have a go at them. Once you have revenue, the non-dilutive options like loans and revenue finances offer a realistic prospect.
5. Optimise cashflow = how can you tweak your model to improve cashflow, discounts for upfront payment etc. We only offer 12 month contracts paid upfront and this has been a big help for us.
6. Pre-seed then profit = you can raise a small amount to get you off your feet, the right angels may offer more patient capital that will allow you to go full time, build the team, and grow. Don’t forget, though, if that raise doesn’t get you to profitability, then you will have no choice, you are now hooked on capital.
At Volunteero, we are now profitable and growing at over 50% YoY. I’m relieved to say that we also don’t have VC board members on our case every month. Life is good, and I believe we will build a really valuable business and achieve life-changing success.
So if you are considering the VC route, then just remember; there is another way.
Ash embarked on his entrepreneurial journey after his career in investment banking left him unfulfilled. He is now a passionate member of the UK startup ecosystem as the CEO and co-founder of Volunteero, a volunteering platform with 150 charity clients and 50,000 volunteer users.
