Don’t Forget To Bootstrap

I recently spent some time with a long time friend and entrepreneur who I’ve funded in the past. He’s working on a new company which I think is really neat and I’m already a user of. He called me for feedback on his fundraising strategy as well as to see if it’s something that we’d be interested in investing in.

It’s outside our themes and different than the type of business we invest in. Given our long relationship and the fact that he’s an awesome entrepreneur, I squinted hard at one of our themes, turned my head sideways, and decided to take a look. We spent a few days applying our process to it (each partner touches it and we give each other real time qualitative reactions) and quickly realized that it really wasn’t something for us as it was far outside anything that we felt like we could help much with beyond money and moral support (which my friend is going to get from me anyway.)

So – I sent my friend a note with my explanation for why we are passing. I offered to help with introductions because (a) he’s an awesome entrepreneur, (b) it’s a very fundable business – just not by us, and (c) I have a lot of confidence that he’ll build a successful business and there are several VCs who I know that I think would like what he’s working on.

His response was dynamite. It was

“No sweat. I knew it was a longshot, so I appreciate you even considering it. I know how many deals you have to pick from.

I’d like to take you up on your offer to help us get funded, but I have a better idea … help us avoid the need for funding (700 clients gets us to profitability).”

He then went on to detail a handful of things he’d like me to do assuming that I’m a happy user of his product. All of them are easy, low maintenance for me, and in several cases actually benefit me.

I love that my friend is much more focused on ramping up his customers than raising money. It’s easy to get lost in the soup of “X company raised $Y” and forget that it’s not about fundraising, but building a business. When I think of some of my favorite TechStars companies, such as Occipital, they bootstrapped for several years before raising any money (well documented in the book Do More Faster) and even then could have easily built their business without raising any money.

Don’t forget to bootstrap.

  • http://www.alearningaday.com Rohan

    Cannot agree more. 

    I’m saying this despite the fact that we bootstrapped our way to failure in a way over 4 years in Singapore where the system is far more inclined to support funded startups who hand over large parts of their equity to the government. But, we learnt an enormous amount from the experience. And we wouldn’t trade that experience for anything..

  • http://twitter.com/VineetDevaiah Vineet Devaiah

    I met jeff from Occipital the other day.. great guy.. but my understanding was that they did try to raise money but no-one was ready to fund them when they graduated from TechStars rather than that they chose to bootstrap. 

     Its the classic case of what Guy Kawaski says “we knew they were a rockstar team”. I think Occipital proved to all VC’s that might have said no they have the passion and intelligence and that usually wins. 

    • http://www.feld.com bfeld

      Yup. Correct. The chapter in Do More Faster explains that well. They tried to raise some after Techstars, weren’t able to, and then bootstrapped!

      • http://twitter.com/AdamNorrell Adam Norrell

        Ah, that’s encouraging! I am a huge fan of Occipital and it is wonderful to see their alternative path to success. While I am sure it’s a hit to the ego to miss on some funding opportunities coming out of TechStars, they made their way. I am a 2012 TechStars hopeful with vlirty.com, and both of these are certainly lessons to keep close to the heart.

  • http://freepository.com John Minnihan

    thanks for sharing this – great perspective w/ terrific insight from the entrepreneur. Nice to see that others have this same type of relationship w/ you (you know what I mean here).

  • http://www.eliainsider.com Elia Freedman

    I have been thinking abut this the last few years. I have to realize that funding is two parts: money+experience. If you don’t get both then getting funding isn’t worth it. I have also come to the conclusion that getting experience is way more important than money, generally, because there are other ways to get money. Fund with the ones you trust!

  • http://twitter.com/UGCommerce John Evons

    This is why I respect you as a VC.  I’ve always believed in the value of bootstrapping and it has taught me several invaluable lessons that I may not have learned on someone else’s dime.  There is no glory in giving up equity for capital, you should do it because you’ve exhausted all other alternatives.  On the the other hand, there is an incredible amount of satisfaction in turning down money because you’ve built a sustainable business.

    As entrepreneurs, we need to build businesses for the future rather than for the exit.

    Thanks for sharing!

  • http://twitter.com/ShareNPay ShareNPay

    Its a great story and the guy’s ability to think up such a great idea proves him worthy in so many ways.

  • Niko

    Funny how narrow our lives can become…  I remember about six years ago or so, when Tivo had about 5% of the TV watching market and I couldn’t think of a single one of my friends who DIDN’T have a Tivo.  Same thing with smartphones three years ago.

    The vast majority of the entrepreneurial world bootstraps, but in some sectors of the start up world (e.g., this VC focused tech sector) it seems odd to avoid outside, equity-based financing.  Even within this VC focused sector of the world, many companies would be better off using debt funding (internal or external) instead of equity financing, even if just as a seed round.  Many people like to use their VC for help in staffing and expertise, etc., but in many cases, if your existing team doesn’t have the talent and experience to get beyond the early stage, you might just not have a good enough team regardless of who is financing you.

    My company funded with internal debt, then some external bank debt, and was profitable before we ever thought of approaching a VC.  Now, we’re self sustaining, and we’ve got VCs calling us constantly attempting to find some reason we need their money.  We may take them up on it just to let some of our partners divest and to expand our software staff, but on terms dictated by us…  Bootstrapping can provide fantastic negotiation leverage.

  • Guest

    Well said. Cheers, Geoffrey

  • http://blogmutt.com Scott Yates

    This is so great to hear, and just can’t be said often enough: “it’s not about fundraising, but building a business.”

    The worst situation is when someone thinks the business is doing well because the founders are good at fundraising. Being good at fundraising and being good at running a business don’t necessarily totally overlap in the Venn diagram.

  • http://www.justanentrepreneur.com Philip Sugar

    For the majority of businesses it makes sense to bootstrap, and I love you provide that counterpoint because of course you are focused on the minority that require the rocket fuel of VC to build huge businesses (and that’s great).

    I think the trend people have missed with the lower capital requirements for technical/software start-ups is not that the lower costs make them more VC fund-able.  Just the opposite!  It means that more and more can and should be bootstrapped.  No different than most of the businesses outside of technology.

    The breathless reporting of TechCrunch makes people somehow believe that X company raised $Y for Z% and is now the founders stake is worth $Y/Z% is where dreams are going to get crushed.  The only way its worth $Y/Z% is if common shares were traded for cash.  When you have deal books that cost tens of thousands the answer is completely unknown.

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  • Bob Batcheler

    As an early hire in one successful start-up and co-founder of another, it is just too easy to think that if I were to do another one, I should do it just like my previous experiences.  The only problem is that even those two are nothing alike – first one largely bootstrapped, the second significant VC investment.  Even if they were the same, the environment has changed SOOOO much along the way.  If I were to do another one, I would go after it just as you described your friend is doing.  Thanks for sharing this experience; it affirms the thinking I have been doing for a while now.  And thanks for all the effort and experience you put into all of your blog posts!

  • http://www.hypedsound.com jonathanjaeger

    There is always an opportunity cost involved with raising money (regardless of success). That was 20-50% of your time you could have been spending on product.

  • http://www.cognation.net deancollins

    Brad, do you think that as startups move to delaying raising funding later and later (or take only seed rounds) that we’ll see more of an emphasis to ROI sustainable startups?
    It seems that here in NY getting funding is seen as the goal and not driving up revenue…..

    http://www.LivefanChat.com

    • http://www.feld.com bfeld

      In some cases, yes. My personal philosophy is raise as little money as you need to make the most progress possible.

  • http://aizon.me Rafael

    Good point. Will apply to my project.

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