Gone are the days when entrepreneurs boasted at cocktail parties about how many million dollars they have raised for their startups. That was so very nineties!
Yes, times have changed. Entrepreneurs seem to have become savvier. In the last 2 months, I have worked / spoken with several sets of entrepreneurs who are perfectly happy bootstrapping their companies.
One pair, an experienced CEO and a technical founder, went through a startup right before, where they raised $60 Million, and watched their shares get diluted to less than 1%. This time, they are determined to do it right, not lose their shirt, and defer taking venture money for as long as they possibly can.
Another has built a smallish company with just over a million in revenues, and simply doesn’t want to deal with venture investors, having had bad experience in a previous round.
A third pair consists of first-time entrepreneurs who worked for a number of years at Siebel, built relationships with customers, and managed to get a $7 Million customer commitment to build their product, while preserving ALL Intellectual Property.
Is there a trend here?
To answer this question, I will take the liberty of some speculation, some extrapolation, and some projection.
Silicon Valley, certainly, has matured. Today’s valley is chock full of second, third, fourth generation entrepreneurs, who have done it before. For most, the VCs have been the greatest teachers. By poking holes in their strategies and business plans, by holding them accountable, time and again, by firing them, by hiring them again, by funding them – the VCs have contributed, most importantly, to their learning experiences.
As Gerry puts it in his article, Axe The CEO,
Entrepreneurs often have mixed goals in starting a business. They want to deliver on a product vision, want to grow a major enterprise and make money, and also want to be the boss. Venture Capitalists have only one goal, they want to make money for their investors and themselves.
It is true, Entrepreneurs have mixed goals in starting a business, money often being only one of them. Besides the motivations that Gerry mentions above, here are a few more: aspirations for greatness, control over their destiny, desire to make an impact, etc.
Here’s a great interview of Craig Newsmark, founder of the famous Craigslist, which offers an alternate value system:
You’ve also had a couple dozen buyout offers for craigslist. Aren’t you tempted to cash out, move from your foggy neighborhood, and buy an island somewhere?
I admit that when I think of the money one could make from all this, I get a little twinge. But I’m pretty happy with nerd values: Get yourself a comfortable living, then do a little something to change the world.
Wow, I thought, when I first read it. A VC would simply shrink from that sentiment.
But it has made me ask the question, are entrepreneurs these days bootstrapping businesses to simply “build, run, and enjoy”, as opposed to the traditional valley models of Build-to-flip or Build-to-IPO?
$7 Million annual revenue is not enough for VCs. It is, however, a good amount to have a good lifestyle, and do something you enjoy. It is absolutely essential, however, that if you decide to go down Craig Newmark’s path of Build-to-enjoy, that you do not take venture money. Not even angel money. No outside money, period, preferably, because investors with stake in your venture will always bug you to exit.
Of course, there are many successes of bootstrapping where entrepreneurs successfully built large public companies. The story of Frank Levinson and Jerry Rawls is one such.
Alarm Clock – Typical example of a business that is not for VCs, but a good Build-to-enjoy proposition. My older piece Viral Islands provides some guidance on how to develop bootstrapped viral businesses.
and from Don Dodge, a survey of the venture-angel investment numbers.