Why we rejected $100k in funding when we had next to nothing in the bank

Photo credit: Jimi Filipovski.

Earlier this year, my team was offered US$100,000 (or INR 6 million) in funding with a 1.5 CR convertible note for a one-year-old startup. We had to politely decline.

Wait, what? You must think we are crazy for passing up on such an amazing opportunity when most entrepreneurs probably wouldn’t. But hell yeah, we did! And you haven’t even heard the worst part: after spending almost a year as a bootstrapping startup, we barely had enough money to survive the next month.

This whole time, our primary goal was to test our hypothesis, improve our MVP, tweak the business model, figure out our acquisition funnel, understand our customers, and try to go above and beyond to turn every customer experience into a positive one and then learn from their feedback. This meant we had to continually experiment, iterate, and optimize. Our new product launch was also scheduled in three months. Despite the turbulence, our team took each day as it came like true warriors with esprit de corps.

You may love us or hate us for making this decision, but we knew deep down what was best for our startup and we made the (right) decision, taking a leap of faith that it’ll work out just fine in the long run.

So what was the reason for such an erroneous (for some) or wise (for us) decision? You can make that call at the end of this article.

Too much or too little money?

Let me go ahead and assure you that no amount of money is too much or too little if you have a solid plan on spending it wisely. This is particularly true when the plan is backed by several months or years of experiments, research, and hypotheses tests using different permutations and combinations. These results can be further evaluated by using various metrics and KPIs to demonstrate that your business can turn operationally profitable even at scale.

No amount of money is too much or too little if you have a solid plan on spending it wisely.

While our concern wasn’t with the amount of money being raised, I felt urban startups would have higher chances of survival if they adopted conservative spending. Entrepreneurs have also become familiar with the Cockroach Theory.

Thanks to folks like Shradha from YourStory, Alok from RodinHoods, and many others, including our Marwadi friends (thanks, Rohit) who have been moonlighting with us on how to grow a real business the hard and profitable way and to focus on sustaining our business first, and scaling up second.

No outside investors

We kept all of these in mind when we were dealing with the investors. We never really wanted to raise a single rupee more than 6 million from these (tech-noob) investors. But they imposed a condition for us not to accept any outside money and wanted us to rely solely on their group/pool of investors for our subsequent funding rounds.

This went totally against our long-term goals: getting seasoned and tech-savvy investors who would not just write us a cheque but also give us access to their network and time, so together we could build and scale the profitable way.

Such unwilling behavior was a big red flag for us because our startup’s growth trajectory could be compromised if we were to follow their way. In a startup, it is the people who bring their rich experience and network to the table that is invaluable. For an early-stage company like ours, it is perhaps even more valuable than raising money.

Too much equity dilution

This is one of the obvious reasons to say no. However, this depends on which stage the startup is raising money, what space they are in, and how much the startup is worth in the eyes of investors.

Smart money or inexperienced money?

Loose operational and financial control

Purely ROI-driven