With this strategy in mind, you compare funding options by creating a 2-year growth forecast using your current monthly mailing list signups (155), estimated conversion rate (5–15%), team size (2), current MRR ($2,400), inherent product virality (k=1.0), and target price points ($99-$499/mo, billed annually 20% of the time, 80% monthly). Rather than open Google Sheets or Excel, you use Summit to do the heavy lifting.

The first question you want to answer is how much cash you should raise. You set “Bootstrapping” as your funding model, which will assume you only have your current cash balance of $10,000 to work with.

Your 24-month cash forecast based on those inputs:

This forecast contains 10 runs, representing a range (ensemble) of market timings and momentum (because things never go according to plan). The 3 runs in this image represent a weak-median-strong spread.

To interpret this chart: if you and your co-founder were to go full-time next month at $100,000 pre-tax salaries, your bank account would bottom out at roughly negative $70,000 in approximately 8–10 months. And that’s assuming none of your assumptions are rosy.

Your net income, meanwhile, for these scenarios shows break even occurring somewhere between months 9–12 (purple areas shifting above $0):

The tall green bars are dividend payments to your team, monuments of hope on the horizon.

Lastly, revenue, showing all 10 runs to illustrate outliers vs. consensus:

Not a hockey stick, but you’re just above $600k ARR in the best case scenario — and not doing terribly at $360k ARR in the weakest case. The average is ~$400k. In the strong case, you’ll have profit to pay dividends, or hire help. In all cases, you’re alive and growing — if you can make it that far.

If negative $70,000 is the nadir, raising $100k-$150k from an alternative funding source could make sense. Let’s compare taking $140k from each:

Source: SimSaaS

TinySeed

More cash should allow you to grow fast, but to stay conservative, you decide to keep almost of your growth assumptions the same, selecting TinySeed first and punching in $140k for 12% ownership. Their terms also make TinySeed eligible to receive dividends, just like your team. If, for example, you chose to pay $100,000 out as a dividend (better than income for [U.S.] tax purposes), you would receive $88,000 and TinySeed would receive the difference of $12,000.

The one change you decide to make: with the new cash, you will allocate 10% of your monthly budget (non-variable expenses) towards paid lead acquisition at an estimated CPA of $50 per, driving leads into the top of your funnel to boost ARR (and your own return on dilution):

Assuming you don’t pay dividends until you reach profitability, and assuming that you only pay dividends when you have more than 3 months in expenses, the future looks like this:

Using the above strategy — keeping the business well-fed with 3 months of cash even while profitable and gaining steam, in the average case you have paid $12,600 out to you and your teammates while sending $1,724 to TinySeed, which is 12.3% of their original investment. In the weak case — one in which you are still on your way to a $475k+ ARR business, you have elected to pay out $0 to conserve cash. And the strong case is a numerologically-satisfying 10x of the weak case.

And of course, your cash forecast is looking much better; in all scenarios, you survive “the dip”:

Earnest Capital

Great. So far so good. You run it again, using Earnest Capital as the funding source, like so:

Using the same logic for paying dividends, the box score results are:

And for illustration, here are the timings of payments to Earnest (dark green) against a Net Income backdrop:

NOTE: Earnest’s terms specify payments on a Quarterly schedule (Monthly shown here).

You now see that, although launching in the same frame and marketing to the same audience, these two alternative-to-VC funding sources are quite different in terms of operational finance.

Painting by number:

Your payments to Earnest in the average case are $34k vs. ~$2k to TinySeed.

The balance of the 3x Return Cap ($140k x 3 = $420k) is $385k.

Team dividends are small in an absolute sense but still noteworthy — $0k (Earnest) vs. $12k (TinySeed).

Earnest has an ‘Equity Basis’ of $385k.

Payments to Earnest have reduced their convertible ownership to 12.8% based on converting their equity basis into a $3 million valuation cap (pulled from vanilla term sheet).

How far will their equity basis shrink? Based on their terms, their stake would have a floor of $140,000 (their initial investment amount) divided by the Valuation Cap in their term sheet. Ergo, $140k as a floor for their Equity Basis would give them an eventual, residual stake of 4.6% after you pay the $420k cap in entirety.

Indie.vc v3

With those trade-offs swimming in your mind, you turn to the Seattle-based pioneers of alternative funding models next: Indie.vc.

You consider raising $140k from Bryce and company, like so:

Playing out the future with the same growth assumptions again, the scoreboard looks like this:

Indie has received $8,453 in payments in the average scenario, while the team has received $14,705. The redemption element of Indie’s terms has shrunk their ownership to 11.7% vs. their original 12%.

And what about those redemption payments? They occur regularly, monthly, after an lapse of time specified on a per-deal basis, commonly 20–24 months post-investment, like so:

Because we are looking at a 24-month timeframe, the payments are only beginning to peek into the forecast. These will continue until Indie’s 3x return cap is reached, at which point they will retain a very small, residual stake of 1.2%.

Decision Time

Few, if any, of the thousands of founders that apply to these funds will have the luxury of choosing among multiple offers, but knowing the trade-offs between these offerings can help you decide what matters most to you.

In terms of equity —each is in the same zone, but headed in different directions. After their return caps are met, Indie will own 1.2%, Earnest 4.6%. Meanwhile, without a return cap, TinySeed’s ownership is constant at 12%.

In terms of cash, things are — counterintuitively, not entirely reversed: TinySeed is indeed the least expensive option in these first two years, receiving the fewest dollars as an investor while you capture more for your team than you would with the terms of Earnest or Indie. But Earnest, meanwhile, who was second in residual equity, has received the most cash out of all scenarios — $34k to Indie’s $8k.

Of course, given the same original investment and return cap, Indie and Earnest will cap out at $420k, while TinySeed will not. TinySeed’s cumulative receipts from their 12% stake will continue to grow while Earnest and Indie’s stay capped. If Array is the next Basecamp, this difference will be measured in the millions of dollars per year. This is a major trade-off.

But, will the additional payouts in the short-term required by Earnest and Indie hinder your ability to become the next Basecamp? Indie.vc navigates this by delaying repayments for 18–24 months. Earnest does not.

So what’s your decision? With valid legal tender and mentorship circles, all three funds are viable vehicles for getting Array where you dream it can go, but the differences are real: Indie.vc allows for a path to maximizing your ownership while delaying repayment, TinySeed requires zero cash repayments at the expense of the most long-term equity and cash in the case of profitable success, while Earnest presents a hybrid that reduces their ownership at the expense of the highest cash outlay in the early years.

For the scrappiest founders that don’t mind the additional cash up front, Earnest offers an ownership-reduction mechanism; for those that do, TinySeed and Indie.vc are strong options, as their cash draws are simply smaller early on, with salary triggers that are higher or non-existent. For TinySeed founders, this will come at the cost of cash in the post-seed, pre-exit phase. Meanwhile, if you plan to raise a single round of capital, Indie.vc’s redemption program provides the lowest long-term equity cost by a wide margin.

Your decision is made.