MBA1839 Should You Get an Investor When Starting a Software Company?

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Because software is expensive, it's not cheap to start a software company. It's not like starting a service or a consulting firm or creating some sort of E product like a book or a digital course. Those are actually relatively inexpensive to start, I should note, because I started several of them. Software on the other hand, requires some capital in most cases. Where do you get that money? Is going down the investor route the best way? Are there other ways to raise funds? That's what we get into. In today's lesson I'm going to share my own experience of starting a self funded software company and try to guide you if you're looking to start a software company yourself in the near future. Let's get into it. Let's get down to business. The all new five Year Business Boost from Comcast Business. It's the certainty of a price lock for five years on qualifying Internet bundles plus the most reliable WI fi with their best equipment. And ask about a $500 prepaid card when you add two lines of mobile. The five year business boost only from Comcast Business Powering Possibilities ends 22226 new customers only one year contract required for guaranteed rate. Five year pricing applies to monthly service charge excluding taxes and fees. Best WI Fi based on Open Signal Awards USA Fixed Broadband Experience Report May 2025 As I mentioned at the start of the episode, I started a self funded independent software company back in 2014. Now self funded doesn't mean I started with $0. It just means I funded myself. I used my own capital and that's always an option. If you have some money on the side and you believe in this project, you can be your own investor. How much money you need? Well, that depends on what you're trying to build and your current resources beyond money like labor and talent. So we're going to get into all that, but I want to start by saying that you can go down the route. A lot of people start businesses with their savings so they have an idea. There's a lot of work and planning you can do before you even actually spend a dollar. And in that meantime you can side hustle. You can build something on the side to earn you cash. Or many people, they literally just do overtime or wherever they work to save the cash. I know that sounds pretty intense, but if it's your dream to start a software business, it's worth it. So let's start with what you actually need to start a software business so we can see how much money we need and if we need to get investors. Now with any business there's really two parts to the business. There's the actual product and then there's the actual selling of that product. So part two, the selling of the product is applicable to any kind of business. So whether I'm selling mops or Lamborghinis or if I'm selling vacations or software, I need a way to sell it. That means I need a website, I need a way to charge people, I need to market this website, I need to service these people. There's a lot that's involved there outside the actual product. Then you have of course, the product itself. You need resources to make that product. Now if you're an author and you write a book, you can self publish your own book and therefore you don't really need any other labor, but you do need to solve the other part of the business, which is the actual selling of the business. You know, selling, marketing, getting customers. So typically what people do with software businesses is they actually start the business with two people, a marketer and a product person or an engineer. So this is one way you can get started without having to have any funding. And there's a lot of great SaaS businesses out there that started that way. Basecamp is one of them. Transistor FM, a podcasting SaaS business. Gumroad ConvertKit. I can go on and on. So if you don't want to take on any investors and you want to self fund it yourself with your own labor, then choose. You want to be the marketer, the person that puts the site together and sells the product and gets you the leads and services customers, or do you want to be the person that is responsible of actually building the software? This would require you to be a full stack engineer by the way. If you're neither, you can learn, right? You can learn how to market, you can learn how to put together a sales pipeline, you can learn how to code if you want to be the engineer. There's so much available online to learn these skills. Many people pick up these skills so quickly that they can start a business within six to nine months given these new skills. So you can find a co founder, find somebody to compliment you and take on one of these roles and, and you can start this business very small. If you're going to start a software company, my advice to you is to start very, very simple, which is called an mvp, a minimal viable product. You're just trying to build an application that does one thing really well. This is not going to be a great product, okay? It's not going to compete with the big companies out there, but you're going to build something so you can learn how to make great for your ideal client. There's a great video on YouTube you need to watch from Michael Siebel from Y Combinator called how to Plan an mvp. And he talks about how minimal viable it should be. It should be ugly, it should be not perfect, but it should just do something decently. Okay, one little thing. So for example, you're starting an email marketing software to compete with mailchimp. All you want to build right now is just a tool that can send one email to a group of people. That's it. It doesn't have to have automation or tagging or any of that kind of stuff. You're just trying to keep it minimal. You're going to get it off the ground so you can get feedback so you can learn. My next one is that with a partner you can both put in some cash if you need to spend some money on like servers or if you want to hire some people to do some part time work, that's always a possibility. Now my number one recommendation if you're starting a software company is one of the best investments is just joining a co working space. Your local coworking space will most likely have some sort of deal with something like Google Cloud Computing or aws, Amazon Web Services where they'll give you free credits like we're talking about $10,000 worth of credits, something that you can really use when you're getting started so you can host and deploy your app for free until you actually have customers. Also these coworking spaces have other incentives and deals with other softwares you might need to run your like payment processing software like Stripe or customer support software like Intercom where they literally give away the app to startups to get started. Now sometimes building it with somebody else or a small team or self funding it is just not going to cut it. You need a good load of cash, you need maybe half a million dollars because your business, your software is quite complicated or I should say is expensive to build. Like if you're in the fintech industry, you know that stuff is going to be expensive because you've got compliance issues, all that kind of stuff. My software Webinar Ninja, it's very, very complex because it merges a lot of different pieces of technology into one software. Email marketing, web streaming services, email marketing, video streaming, landing pages, chat, all that kind of stuff. So it really combines a lot of pieces of technology together. It can get quite expensive. So I actually had to put up a lot of capital at the start to to run this business. I also pre sold the software to get an influx of cash, but a combination of both. It's a few hundred thousand dollars in this case. You can get an investor but it's going to be hard for you to get a really good deal because you don't have any customers yet. There's no real way to say hey, this company is going to be worth xyz. There's two schools of thought here. Some people say it's good to raise funds before you actually have customers because it's sort of like the sky's the limit and investors are more likely to put money. Some other schools of thought which I subscribe to. And if you ever watch Shark Tank, you'll hear the first question they say is like, how many customers do you have? How much money do you make every year? What are your numbers in terms of sales revenue? This is more appealing to an investor because they actually see that the product has legs, there's product market fit, and they're willing to invest and they're going to invest with a fair amount of equity because they have the numbers. It's much easier for an investor to kind of exploit the situation and say, hey, you have nothing and you can't pull this off without me. I want 70% of the business. I want 60% of the business. This is not unheard of. Some investors will do this, especially angels. And of course, there are great investors that don't exploit the situation. My advice is to actually try to at least garner interest in your product. Put a landing page together, put an opt in in there, see how many people are interested in buying this, even if it's on a WA list. So you can say, hey, I got 50,000 people on a waiting list for this product. There's interest in this market, there's interest in this product. You're going to have a lot more leverage with that data to get investors. Another option is going with micro investing. A company that I think does this very well is tinyseed, where you're not getting millions of dollars, you're getting maybe a good amount of money to get you started. I think it's around $100,000, $200,000. They do take a cut, it's a reasonable cut, but it's also like an incubator and a great community for you to be around to be able to build your software around great peers. And lastly, the other option I want to mention is, because it's a viable option, is debt financing. Now, most debt financing options need to see some numbers, need to see some sales to say, okay, this business has customers and they are happy to give you a loan based on your revenue. Payment processors like Stripe actually are starting to get into debt financing. Another company that comes to mind that's really good at this is Lidar Capital. But most of these companies are looking for you to make at least 15 to 20 thousand dollars a month in monthly recurring revenue to prove, hey, this business, this software has legs. So that's why I'm saying the MVP part is really important because you're going to have a lot more options if you actually have customers. If you actually got to that point, once you get to $15,000 in monthly recurring revenue. In a software, you have some traction. You have product market fit. You have a response from the market and people want to get in on that.

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So should you get an investor if you're starting a software company? If you're okay with parting ways with your equity in the business? Sure, why not? A lot of people are okay with it because they're like, this is not my only business. I'm going to start other businesses in the future. And if this thing is amazing, owning a fraction of the business is going to be worth a lot. Also, some people just don't want to invest their own money. They want to keep their money, their personal cash aside, and they want to do business with somebody else's money. If you're that kind of person, go ahead. If you're the kind of person that really believes in your business and want to have full control and want to reap all the benefits and take home all the booty, then self fund yourself. That's something that you're going to feel happy about, that's something you feel comfortable about and there's no right or wrong. It's just what you want and of your experience with your business. And lastly, I highly encourage if you can simplify your software to a point where it's solving a problem, a pain point, really well, start selling that. Get some velocity, get some customers, get to 15 to 20K MRR. You're going to have a whole lot more options and funding. Thanks so much for listening to the Hunter MBA show. If you love it, you hear hit subscribe so you never miss an episode. You never miss a beat. When our next episode drops, you'll get it automatically on your device. Before I go, I want to leave you with this Running a software company is expensive. It's not cheap, okay? There's a lot of moving parts, there's a lot of technology that you have to pay for, a lot of tools and of course a team of engineers once you start growing. And highly talented engineers are expensive, especially ones that are highly communicative and really see your vision and are a good culture fit. That's a rare mix and you're going to need that mix to be successful. But you don't have to start with a big team. You can start with one person, high quality engineer. You can lead them. You can do the marketing stuff if you want, or vice versa. The point here is that go for quality, not quantity, and grow. Because one great engineer, one great hire, can be equal to 10 hires and can get you the growth you need to move forward in your success in your business. Thanks so much for listening and I'll check you in tomorrow's episode Q and A Wednesday. I'll see you then. Take care. Foreign. Trader plus the next generation of advanced trading from Fidelity. Customize your tools and charts and access them seamlessly across desktop, web and mobile for faster trades anywhere you go. Try the all new Fidelity Trader plus. Learn more about our most powerful trading platform yet@fidelity.com TraderPlus investing involves risk, including risk of loss. Fidelity Brokerage Services LLC Member NYSE SIPC.