I think that you are perhaps you and your co-founder are the only ones who can answer this question. I know that sounds trite but that's not what I mean it to sound like. My point is this: no one knows better than you two what your goals are with the company. You said, "We're bootstrappers by nature and would rather have our first business be a strong base hit than aim for the fences." I'll take you at your word that this is true.

So the question that you and your co-founder have to answer is whether or not you want your personal finances to be at $25m, $50m or higher in 10 years? If so, it's less likely that this will happen if you bootstrap rather than raise/sell. And there is no right/correct answer - no one can tell you which you should do, only what they might do in your situation or what they think someone like you might do in that same situation.

There are other aspects to it as well but the key point is, in 5-10 years from now, what will you want? Do you still want to be running the business or will you want to have hit the "reset" button and have moved on to something else? There's no crystal ball so you have to take the risks and rewards all into account.

Good luck and congrats on getting to where you are!

Well, you shouldn't rule out funding options.

It's up to you to do the math. If you stay on the bootstrap path, you own 100% of the company, and have a slower development schedule.

If you take financing, you give up some ownership in exchange for acceleration.

For most people looking at funding there is still a lot of "mystery". Can the team build the product? If they build it, will the users come? And so on. This leads to valuations that are highly speculative (lot's of risk involved), and funding terms that reflect this.

For your case, much of the mystery has been removed. This also reduces the possibilities of crazy-high valuations, but also gives you a lot more power in the negotiations.

My guess would be you might not be the traditional VC big investment big speculation kind of deal, but might look attractive to the lower-end of some of the super-angel sized deals. If your math is good, you could represent a good medium-risk investment.

If you really "only" need $500k and you've got $200K of profit, I would tend to think you could investigate debt financing instead of equity financing. Silicon Valley Bank might be one outfit worth talking to about this.

If we took a smaller angel deal, to what extent would we likely be giving up operational ownership in addition to fiscal ownership?

There is no generic answer.

My quick thoughts (and I'm not trying to pass myself off as an expert here, just have some basic experience).

Valuations for businesses at your stage seem to vary from 2-5x annual sales, to 2-10x annual profits, depending on many many factors. But in either case that seems to put you in the $2MM-$5MM valuation range. If you're looking for a $200-$500K investment, you're looking at about a 10-20% equity stake. This would be a non-majority stake, so you should be able to structure this so than an investor (or group of investors if you got 4 or 5 angels) didn't have majority control... though in that case you'd probably have to pay attention to number of board seats if you actually took multiple investors.

IMO, what you most likely need is an experienced (super)angel who can give you solid advice about managing the growth of the company. This would probably include introductions to finance people (eg: CFO/Controller types), cash management strategies, biz dev/strategist folks and so on. Basically you'd probably look for someone who brings a little money and a lot of connections who is looking to provide solid business guidance.

Awesome advice -- thanks!

Right now the product makes maybe $80k/yr. Not bad for something that hasn't officially launched, but hardly our companies key revenue source. We naturally would rather grow this than the consulting side of things.

I think what I am seeing in this thread is that it probably makes sense for us to hold on investment until a bit after we've launched. We'll learn more about what our growth bottlenecks are that way and what we really need.

It seems a bit premature at this point to take investment against our consulting income if we can avoid it. My guess is that we could probably get better terms if the product is doing well.

Bootstrap your way to stardom. Its not like you won't survive if you do not get funding.

This is our instinct, but are we selling ourselves short? SaaS loves $$ to grow fast.

Another way to look the whole situation apart from bootstrapping gung-ho which I suggested earlier will be to ask yourself the following 1. Do you already have customers who have shown intent on using the product? - if Yes then it indicates that people are waiting for your product so there is a reason for you to release soon. If No then find these potential customers

2. If you already have a set of potential customers then reach out to them and validate whether they need all the features which you are planning to include in the first release? - If the features (the basic set) is less than what you had understood then you need to check how much money you need to get it out to the users. Again you are just validating your understanding and not asking the users for what features they'll want.

3. Do you have a kick ass team which anyone who you go for funding will ask you for? - This as mentioned above matters to anyone whose going to give you money

4. Is there competition to your product? If yes then how do you stand up against them?

Answers to these questions will indicate something and then on top of that you should add you gut feel whether you are comfortable or not with taking outside money.

Best of luck.

1. Yes. There is overlap with our consulting customers as well as a 'release notification' email list of ~2k.

2. Initial release is feature complete.

3. Our team is awesome, but young/inexperience.

4. Yes. I believe we stand up VERY well. Our only downside is that we're new/unproven.

Only you can make that call. The formula is easy, but there are a few unknown variables.

Think about what you'd do with the money, and put together a realistic estimate of what you'd achieve that way. Compare that to a realistic estimate of what you'd achieve through bootstrapping. Then, figure the equity you'd have to give up, and do the math.