Bootstrapping using a paycheck is a real trend. Here’s one more case study!
Sramana Mitra: Hamid, tell us a bit about yourself. Where were you born and raised and in what kind of background?
Hamid Shojaee: I was born and raised in Iran. I was 10 years old when we moved to the United States.
Sramana Mitra: What time frame was this?
Hamid Shojaee: I was born in 1973. I was there until about the end of 1983.
Sramana Mitra: Where did you move to in the United States?
Hamid Shojaee: We came straight to Tempe, Arizona. I’ve grown up here ever since.
Sramana Mitra: You’re still based in Arizona.
Hamid Shojaee: Yes, we are based in Arizona right now.
Sramana Mitra: What about college? What path did you follow?
Hamid Shojaee: I went to Arizona State University. I never finished my Computer Science degree. I dropped out to start my first software startup. Basically, I’m a college dropout.
Sramana Mitra: What were the circumstances of founding that first startup? What did you do with that company?
Hamid Shojaee: Ever since I was a teenager, I have known that I wanted to own a software company or do something in software. While studying Computer Science at ASU, I would bug my roommate to brainstorm on potential software companies we could start. Eventually, we stumbled on a company that made fingerprint recognition devices. This is in 1995 when fingerprint recognition devices were very new – at least affordable ones.
We thought, “What if we took this general purpose fingerprint recognition device and start writing the software around these devices to control access to membership?” If you go to a gym, instead of showing a card as your ID, you use your fingerprint. When you go to work as an hourly employee, if you need to swipe your badge to clock in and out, you use your fingerprint to clock in and out. We thought of dozens of applications for using fingerprint recognition devices. We wanted to be the software company that brings all of that to life.
We pitched the idea to some investors and they absolutely loved it. We pitched it as, “We are going to be the Microsoft of the fingerprint recognition industry.” We raised some money and dropped out of college to focus on that startup. We quickly learned all sorts of things about how difficult it is to build a successful software company.
Sramana Mitra: How much money did you raise and who were these investors? Were they angels?
Hamid Shojaee: We raised $300,000 in the form of a promissory note for half of the company.
Sramana Mitra: Oh my goodness, terrible deal.
Hamid Shojaee: Yes, it was horrible, but we were 22.
Sramana Mitra: Of course, you didn’t know and we’ve all made mistakes like that. I see this constantly in the program. People are raising money at dreadful terms. I’ve done that too.
Hamid Shojaee: When you’re 22, you don’t know.
Sramana Mitra: Exactly. Nobody’s telling you any better.
Hamid Shojaee: If the alternative is not to have done it, I would have definitely taken those terms a hundred more times.
Sramana Mitra: At 22, it doesn’t really matter. It’s almost like somebody’s financing a business education.
Hamid Shojaee: That’s exactly right. Had it been a huge success, it would have still worked out wonderfully, but we struggled of course like most startups do, especially when they’re very inexperienced. It was angels introduced through friends who invested in us. We basically built the business with the expectation to have to raise more money at some point down the road. Within 10 months, we ran out of money and we had to raise another round. We quickly realized how the illusion works.