Should you try to raise capital for a lifestyle business?


5

It is worth trying to raise a small amount of capital (for less than 10% equity) from angel investors for a startup that is meant to be a lifestyle business?

I know that VCs would be out of the question. But would angel investors be interested? What are some pros and cons of even trying to raise money for such a business?

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asked Apr 16 '14 at 20:56
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Bruce Schwartz
767 points
  • How much is a "small amount", and how big/small do you consider a "lifestyle business"? – Nick Stevens 5 years ago
  • I'd say about $100K - $250K. Which would seem quite small compared to the amount of the capital most startups raise. In terms of how big/small a lifestyle business can be, there are many that have reached $1M to $5M in yearly revenues. – Bruce Schwartz 5 years ago

1 Answer


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The biggest question is - at what stage do you consider looking for capital - building MVP, getting to product/market fit, growth & scale. The earlier you do it, the harder it will be and the smaller your business valuation will be (thus more equity to give up to get what you need).

A few questions to ask yourself:

1. Do you need the money? Can you avoid raising capital? In an early stage, the biggest expense is salary for people building the product, so could you offer equity to people that vests over time instead of borrowing from an angel investor?

2. How valuable is your time working on the business at the stage you are in? Would the loss of your time be a critical factor for how well your business would be doing?

3. How does the amount of money you need correlate to your current business value? Valuations pre product/market fit are complicated and post product/market fit are a combination of current revenue and anticipated growth rate.

While some lifestyle business do grow beyond founder's original goals, typically founders of such businesses aim to make enough to cover their own time and expenses and to live comfortably. I would say a common target is around 50-200K/year, depending on founder's cost of living (location). I am also going to speculate that getting to the desired yearly revenue takes solo founders of lifestyle businesses a while, especially if they are first time founders without an existing network or customer base to tap in. Source: I just got back from Microconf, a conference for self-funded startups, and speakers who have successful lifestyle businesses shared stories of timelines in the range of 2-5 years for their first success.

If you need money to fuel growth after reaching product/market fit, then getting capital would be easier. There are many angels who lend $25-50K for seed stage startups, but it seems the competition for that is intense. Lastly, consider applying to an accelerator or incubator - they give you seed funds and help you get going, so a form of "smart money".

answered Apr 17 '14 at 20:14
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Webbie
2,835 points

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