Why we chose to bootstrap our tech companies
In June I talked to three CEOs of venture-backed companies about what happens after getting funded, specifically as it relates to reporting to investors. While taking on venture capital can play a pivotal role in scaling up your tech company, it’s not for everyone.
So what happens when you choose to avoid venture capital? I talked to three CEOs who describe their Indiana tech companies as being “bootstrapped.” In general, this means they were able to create and grow the companies without adding outside investments from institutional capital resources like venture capital firms and angel investors. Why did they choose this path and what words of advice do they have for the rest of the Indiana tech ecosystem?
Meet the companies
DoubleMap provides rider and administrative-focused transit solutions for 90+ universities, municipalities, corporations, events, and airports worldwide. Their solutions, such as mobile apps for catching the bus, and automated voice annunciation for aiding visually-impaired riders, have enhanced the rider experience for small transit systems and Fortune 500 companies alike.
Sticksnleaves is a full-service eCommerce and consumer consulting agency focused on growth. They help clients brand and launch new products and distribute them using growth marketing.
Glassboard is a group of electrical, mechanical, and software engineers, focused on developing physical products in a variety of industries including consumer electronics, automotive, industrial, and medical. Glassboard helps their clients take ideas and concepts from prototype to production.
Why have you chosen to remain bootstrapped as a company to this point?
Ilya Rekhter, Co-founder & CEO, DoubleMap
Many of DoubleMap’s clients use grants to fund their projects. Grants-based deals are unique compared to traditional SaaS because we receive most of the funds up-front as opposed to billing monthly. Cash is king (especially in the early days of DoubleMap), so we leveraged this model to grow organically and retain 100 percent control of our company.
Yaw Aning, Co-founder, Sticksnleaves
From day one of launching Sticksnleaves, we were cash flow positive so we never really needed capital. We likely would have used capital to grow our market awareness locally here in Indianapolis. However, 95 percent of our business comes through a referral from existing customers, so when we considered how we might effectively use capital we never found a paid model that worked better than networking with existing customers or colleagues in our network. While we noticed this in hindsight, funding growth through cashflow actually created discipline around growing the business. We were much more creative about building the company because of the capital constraint, which I believe helped us think more creatively about building our brand.
Randy Parmerlee, CEO, Glassboard
The first reason for us was simple–autonomy. We’ve enjoyed being able to operate without outside shareholder pressure on profits. While this can be detrimental in some ways, it’s allowed us to pivot quickly when looking for new market opportunities. We can test business strategies rather quickly, without the stress of needing to make an outsider excited and engaged. The next reason is a bit less forward, but more honest. We just haven’t needed it. While our growth has been slower than typical investor backed companies, we still see growth year after year at a pace we can support organically. This allows us to keep profits inside the company, reward employees, and focus on building the right team, without the pressure of quick gains for investors. It causes us to be more deliberate in our efforts, more mindful of our spending, and provides a better opportunity in the future to raise money, should we decide to do so.
In your opinion, how would taking on capital impact your company?
It would add more headcount, more speed and more urgency, but with less control. We would be betting that the money would bring our roadmap to life faster and that our roadmap is what our clients truly desire.
Since the vast majority of our business comes through referral, we likely would have used capital in more strategic ways to build relationships with a wider network of referrers. We might have also invested in paid marketing campaigns or brought on more business development or product talent. However, I also think we could have done those things without additional capital so I don’t think investment at our stage would have had a significant enough impact that it would be worth the dilution in ownership.
Taking on capital could accelerate our growth by allowing us to bring on more resources. Our company, in particular, spends very little money on marketing and sales in general. We’ve got a core team that has been focused on relationship building, which is a much longer sales cycle. Having some extra funds to test some different marketing and sales approaches would be a unique opportunity for us. In addition, we could potentially acquire some additional equipment and other assets we need to bring some of our outsourced work in-house to reduce costs and time to market for our clients.
What words of advice would you give to company owners/founders who are on the fence with regard to raising capital?
Don’t chase headlines. There are pros and cons to bootstrapping versus securing venture capital. Simply be deliberate with the path that you chose. Raising a couple million bucks is cool, but you don’t want to be the founder who is in constant fundraising mode. Bootstrapping is far less exciting, but it has allowed me to spend all of my time visiting clients, building what they ask for, and organically growing our company culture.
Most founders raise capital because they simply need money. However, it’s much more important that when you take on investors, you look for leverage. The hardest thing early-stage companies struggle with is building unfair advantages that help them win a market or create a moat around their business to make it defensible against competitive threats and durable over time. I’d advise all founders to find investors that provide not just capital but significant strategic leverage to help their business go further, faster.
You need to truly understand why you need the capital and, more importantly, how you intend to spend it. Is there a piece of equipment needed to facilitate growth? Is it necessary to build up inventory? Are there folks needed on the team to fill technical gaps, sales or customer support? Also, think about the potential investor–whether a single angel investor or a VC firm. Are they just a source of capital for you, or do they provide additional resources such as a large network, relationships with key customers or industry experience? Finally, most investors are looking for a large return on their money. Your plan needs to outline a way to get there.
We write often about Indiana tech companies that are raising money to scale their efforts. Moreover, TechPoint brings together startup and scale-up tech companies with venture capital firms every year through events like VC Speed Dating (formerly Winners’ Circle.)