Re-Investment

In this post Fred Wilson goes on to explain that a company should first scale & gather traction on seed funding before it goes after venture round funding. Whilst WooThemes has never taken any outside funding (we’ve bootstrapped from the beginning), Fred’s post did make me think twice about when it’s a good idea to re-invest earnings into a company.

So with WooThemes, we’ve been steadily gained traction and grown our revenues & user base since we started out, without having to really re-invest those revenues (in one significant decision) back into the business. Instead we have been very lucky in that we have a very cash flow positive business and we are thus able to cover all immediate expenditures (capital included) from those revenues.

But similarly to Squarespace (who just announced their first outside funding of $38.5m in 7 years), I can see merit in re-investing funds in a rapid growth campaign / strategy.

I think when things are going well and a business is growing steadily, it is easy to start applying revenues to optimize a business just enough to fuel that steady growth rate. But if you’re keen to ramp things up quickly & significantly, then a significant re-investment in that strategy is probably required.

Even whilst writing this post though, I’m personally at odds about how I see this strategy, as I’ve never been the kind of entrepreneur that simply wanted to throw money at something; much less a growth strategy. Instead I believe in organic growth, innovation, great ideas & clever marketing solutions.

What do you think?

Chris Wanstrath, co-founder of GitHub, on bootstapping.

This is a great write-up by the 37Signals crew about WooThemes which focuses on being bootstrapped and building a global business without any VC funding.

If you’re keen to get to know WooThemes in any way, this post is a great start.

A few thoughts on why first-time attempts at raising funding are failing.

The venture capital structure is banking on finding that one super-duper winner, and there’s nothing wrong with that, but our goal is to create a network of companies with lots of connections between them that increases the likelihood of success between all of them.

John Borthwick, on how Betaworks goes about their investments.

First time that I’ve heard a VC explaining their investments this way, but this makes total sense as they are not only diversifying the risk between different investments, but also increasing the combined probability that they will all succeed (to differing extents of course).

On Angel Investing

So as I’ve mentioned before, I’m really keen to do some angel / seed investing (via iincubate, which will also fall under the radiiate umbrella) in the future and as a result I’ve been following quite a few influential peeps in that space as a way to build up my own knowledgebase.

Up until now, I have zero experience with angel / seed investments and the bit of theory that I do know, I picked up during my graduate studies in Business Management. That being said, I don’t think that angel investing is overly hard to grasp, as it is not much different to any other form of investing (imho as a newbie).

I’d think that it would be possible to make a solid investment decision based on the following two factors:

  • Does the idea make sense? Irrespective of how speculative the idea is, if it makes sense and it’s possible to turn it into a sustainable & potentially profitable idea, then your investment should be fine.
  • Does the business / revenue model make sense? How dependent are those on external factors & assumptions? What percentage uptake / number of customers do you need to cover overheads?

As far as I understand (and this is my mentality with regards to angel investments), the idea is to take a small percentage of a startup at a conservative price level (so you need to get in early). Based on that, it is thus possible to limit one’s risk exposure with great potential in terms of earning a proper ROI if the idea & business model does gather traction.

I’d love to hear your thoughts on this, as these are just the thoughts that I have been playing with in my head… I still have a lot to learn obviously and most things I’ll only end up learning with future experiences. In the meantime though, my plan is (as it has always been) to simply wing it and learn on the job…

Incubator promises money to startup, startup moves to incubator, incubator can’t deliver on funding promises and startup left to pick up the pieces. Too harsh.

Great read if you’re interested in the startup & VC world.

Curious about why a technology hedge fund would be interested in such an investment…

I have not heard about one of these startups before and I work online… Not suggesting that this makes these startups more or less likely to succeed (I’m sure Y Combinator know what they’re doing by now), but this pretty much sums up the VC / angel funding scene imo.