HACKER Q&A
📣 p2hari

How to raise money when the revenues are down but the product is liked?


Dear HN,

We are a startup based in Denmark and have been operating in the space similar to 'NextDoor'. In fact we consider them as our biggest and important competitor. We have been in operation for close to 4 years now. The first two years we had our MVP tested in the market and then we had good feedback and had paying users. Our revenues grew from approx.. 20k USD to approx. 50k USD over the first two years. One thing that helped increase the revenue was, we were on Danish reality TV show which is similar to 'Shark Tank' and we got funding from 2 investors for a very low valuation. We were excited and took it which we think was wrong as we were early and lost good equity.

Then COVID hit us. However we did not think it will affect us since we had good interest in the platform and started building a new web facing product and added features by outsourcing dev to increase roll out speeds. Also we had an annual pricing strategy which is costing us on support. We have lot of tech debt and bugs in the product and needs to be addressed. The customers are still showing interest and asking to be on platform. But we cannot scale since we are cash crunched and revenues are down to year 1 numbers. We are a small team of 3 founders and the have been working on this with very less to no salary for few years now.

We also have a good advisory board but less said of that the better.

Some suggestions we got is to join an accelerator program. I have already been in one of the top programs in EU and feel we are little ahead and might not be right fit. Second is to raise money from crowd funding platforms. But we do not have real expertise to do this nor importantly have something to give back of value.

I am trying to raise funds, and getting some interests but only if there are other investors. So, getting a group of them excited on the mission is what is challenging. We have learnt a lot very quickly and adapting to these hard times also but still having a challenge to raise funds.

Looking for suggestions and advice. Thanks.

  👤 davismwfl Accepted Answer ✓
Typically to raise funds you need to be able to show real growth in at least a few metrics. Revenue is great, but if you can show user growth, and/or growing time on platform month over month that will get investors excited, even if revenues are down. Sometimes revenue goes down when you change strategy, but you still need to show growth in other metrics to get investors on board. If revenue is down and user growth is down it will be nearly impossible to get someone to put money in that scenario.

If you aren't showing growth and revenues are dropping you are in a failing situation and the sooner you accept it and make some hard decisions the better (been there myself more then once). Doesn't mean you have to give up, but you may need to work harder, be more creative, look for alternative revenue sources etc and definitely get the growth metrics heading up. It could also be maybe time has run and you guys are done with this attempt and so closing shop and moving on is best. Only you & your partners know.

FWIW, this is where cultivating relationships with high net worth people early and often is helpful. A lot of times they are wiling to fund a good venture even when it doesn't match traditional funding guidelines. Usually this is them funding people they believe in with an idea they think can grow, but it usually requires prior relationships being built and is hard when you are already in trouble. If you have these connections or can develop some to this group of people it might be helpful, if not for this venture for the next.

Good luck!