I bootstrapped my first internet company to a few full time employees. For two years, I read TechCrunch and thought “look at ALL these companies getting funded, If only I had VC funding, my life would be so much easier!” (The only reason I bootstrapped in the first place was because I had no way to raise funding.)
I treated any cash I made like it was life blood. I watched every expense, every dollar meant the world to me. I did end up generating revenue and launching my product. But… I barely had enough money to hire employees and pay the bills. The thought of having extra cash in the bank seemed inconceivable. I couldn’t even fathom what I would do with funding. “All my problems would be solved with ANY amount of funding”. That was a no brainer.
After a couple years bootstrapping, I didn’t get rich, but I eventually came up with a great idea for a new venture. I networked like crazy finally raised a small angel round. That was a year ago. Since then, I’ve raised over $2.5M in venture capital funding, gotten significant press coverage, and hired a fantastic team.
Things are different, but it’s nothing like I imagined.
The cash does not make building the company ANY easier. If anything, running the company is harder now because of modified expectations. Let me explain…
- Modified expectations – The expectation is that we’ll create a billion dollar company, not generate revenue. Even if the company ends up making a million dollars a year… it’s a failure. (A company that makes $1M/year would sell for around $5m which would not return any profit for the investors).
- I rely on others – When it was just me and my brother, we were forced to do mostly everything ourselves. Now, we rely on designers, developers, and marketers to do work that we normally would’ve hacked together ourselves. Are the results better? Maybe. But they would’ve gotten done either way.
- It’s all about the money – Now, I need to focus on raising the next round, keeping dilution down. Making sure the investors are happy. It’s hard to focus on the business sometimes. VC’s can be a distraction.
- You’re in a never ending cycle of raising – Since we spend more money now, it’s much harder to turn profitable. This means that we’re expected to raise more funding. In many cases, successful startups fail because they can’t raise more.
- Your stake is small, and gets smaller over time – Every time you take more capital, you give away a piece of the company. By the time many startups exit, the founder owns less than 10%.
I am thrilled that we raised funding, it’s been crucial to the growth that we’ve seen at NeoReach. I just didn’t think about the above repercussions before raising. But don’t get me wrong, if I could go back in time, I would do the exact same things again…
But as a matter of clarity: If I was forced to build my company without VC funding, I could come close to the same results. It would take longer and the growth would be slower, but the overall outcome would be a launched product in either scenario.
For those of you reading this that are looking to do a startup: Just remember that you can get very very bootstrapping. In most cases, you probably don’t need funding to build your company. To distill this post down to one sentence: VC funding is a “nice to have” not a “need to have”, but most people assume that you NEED to raise funding in order to build your company. That mindset is just flatly wrong.
In this 3 minute video below, my co-founder P.J. Leimgruber describes the early days leading up to where we are today. He does a great job talking about the contrast between bootstrapping and how fundraising changes things.