Akeel Jabbar, Investment Director at Horizon Capital, argues that customer-funded growth beats venture capital for SaaS startups. Paying customers fund product development, teach you what the market needs, and tolerate early mistakes. He saw a founder spend all his time raising money while the company burned cash and died.
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Venture capital, Series A, SAFE, venture round, revenue-based equity, personal savings, government grants, loans— there's just so many different financing solutions on how to raise capital for your next startup. And you're probably asking yourself, which one should I pick? Which is the best one for me? What's going to give me the best results and the best ROI for my time in my business? And today I'm going to talk about one that's probably the least talked about, the most underrated And probably the best, the number one source of financing that I recommend. Hey guys, welcome back to another video. Video here at SaaS District. My name is Akeel Jabbar. I'm the investment director and GP at Horizon Capital, where we work with B2B SaaS startup founders who are looking to take their business to the next level through having a growth partner who invests time and energy to help them grow, as well as help them raise capital to take their business to the next level. Now, before I get into the number one way that I recommend of how to raise capital for your business, I want to share a quick story. So I remember just about, I think over 5 or 6 years ago is when I joined this startup. This was actually a friend who invited me, somebody who I've admired, who had a lot of great businesses in the past, who's had really good success in building his companies, but they were all traditional companies. He's never built an actual startup before. So he invited me to come in as a founding role at the time. This was in the very early stages as the COO. And he's spent all this money on building the product. He's outsourced the product. So He spent so much energy and his efforts into building the product, which was great. You know, we had the momentum building product, getting feedback from users on what they wanted, what they needed, and then making adjustments every single day, which is all part of the journey. The issue was, what I found was that he was spending so much of his time as the CEO of the company trying to raise money. He was going out to investors, pitching them, selling his idea and his vision of what the product was doing. But he didn't give the right attention to the actual business. He wasn't looking inside, wasn't spending the right time on actually showing results and actually growing the business to be able to then use that to go back to investors and raise the money. And what happened was he spent just so much time on the outside focusing on talking to investors and left the business kind of on a standstill. And what happened was over time, he started bleeding capital, bleeding money, wasting so much energy on the wrong places. And what happened was 8 months later, we had to shut down the startup. And just because we lost, you know, we didn't have enough capital because we didn't get the results we needed to continue paying the bills. So my lesson there and what I apply now to all my businesses is the number one way to raise money is through your customers. Okay? Let your customers fuel your growth. Let the sales and the cash coming in from your users who are actually going to pay and use your product fuel the development of your product, and that is the best way because you're now not under the control of other people. You're purely focused on giving value to your end user. For example, the founder that I was working with, he spent half the time that he was focused externally on trying to get more sales, trying to get more revenue, and actually selling the product. We would have stayed in business. And what I like about when you're getting money from your customers to pay for your company and to pay fuel your financing and capital and growth is you're getting a couple things. One is you're getting— they're paying you basically to build your product, right? So that's number one, they're paying you to build your product. Number 2, they're paying you to learn. You're learning over time what they actually want, and they're still paying you month over month to be able to learn and build features based upon what they ask for. Number 3, and they're paying you to make mistakes because you're going to make mistakes, right? Because that's what investors are doing, that they know You're going to be making mistakes over time and you develop it. You don't have all the answers, but they're going to keep paying you as long as you're understanding and you're working with them. They know that's not going to be perfect, but over time it's going to get better and better for them. So that's my number one recommendation. If you're thinking about, hey, I need to raise money, I can't just— I can't do anything without it, build your product, get your customers to pay you upfront. You've probably seen one of my videos where how I share with you how you can presell your startup without even building your product, which I suggest you check out. But get the money up front, use that as your source of capital, and then build upon that. Because I guarantee that'll be the best use of your time. You'll get the results that you're looking for in the end for you and your customers. And then from there, if you decide you really, really need capital because it's just not— it's just growing too fast, you need to hire people, you need to start burning capital, then at that point you have the results, you have the traction, you have the users. You can go out and then go out, raise external capital. There you have it, guys. Hope you enjoyed this video. If you liked it, obviously make sure to like it, hit the subscribe button, hit the bell, and let me know in the comments below, what is your favorite source of raising capital? What have you done to raise capital for your startup? What have you found to be— what have you found to be the best way to raise it? And what have you found to be most successful for you? All right. Thanks again, guys. And I'll see you guys on the next The one. Bye. next video.
