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Best of Bootstrapping: Bootstrap First and Raise Money Later

Posted on Friday, Feb 15th 2019

I wrote a book called Billion Dollar Unicorns a few years back. Writing this book took me through the extensive process of talking to entrepreneurs who have built tech companies with valuations above a billion dollars. While there is a tremendous amount of serendipity involved in any extraordinary success story, one recurring theme comes up in these case studies. I am particularly excited to share this nugget because it applies broadly to all classes of entrepreneurial ventures.

Bootstrap first, raise money later.

That’s what Fred Luddy did when he founded ServiceNow back in 2005. Leveraging his domain knowledge and expertise in IT ServiceDesk software, he rapidly acquired 12 customers before raising funding. Initially, he started charging $25 per seat and the 12 customers paid up. He raised $2.5 million in venture capital WITH 12 customers, and ample validation.


Soon they clocked $850,000 in revenues in their first year as a real company. In 2010, they had grown to $45 million annual revenue run rate with 350 enterprise customers. They ended fiscal 2013 with revenues of $424.7 million.

Prior to listing on the NYSE in 2012, ServiceNow was venture funded with $83.7 million in investments received from JMI equity, Greylock Partners, and Sequoia Capital. They raised $162 million in their IPO. Soon after listing, ServiceNow had touched a valuation of $3 billion. Since then, the stock has skyrocketed. It is currently trading at $234.03 with a market capitalization of $41.96 billion. Clearly, a mega hit Unicorn that started, however, by bootstrapping first.

The same theme plays in the story of Tableau Software.

Seattle-based Tableau Software was founded by Stanford alumni and professors, Christian Chabot, Chris Stolte, and Pat Hanrahan in 2003. This was Christian’s second entrepreneurial venture after he had successfully sold BeeLine Software within 18 months of setting it up.

Initially, there was no investor involved. In fact, for two years, and 200 customers, there was no investor involved. In effect, they bootstrapped.

Then they got a mammoth 4-year OEM deal with Hyperion including an advance.

At this point, Tableau raised $5 million from NEA at a $20 million pre-money valuation. The average pre-money range at the time for Series A was $5 million.

Revenue ramped very well. In 2004 they did $800,000. That rose to $2.1 million in 2005, $3.7 million in 2006, $7.8 million in 2007, $13.9 million in 2008, and $20.1 million in 2009. The company earned $34.2 million in revenues in 2010 and had grown that to $127.7 million by the year 2012. Tableau saw revenues grow 82 percent over the year to $232.4 million for fiscal 2013.

Tableau went public in May 2013 raising over $250 million at a $2 billion valuation. Today their market capitalization is over $10 billion.

I love this story for the sheer execution savvy of the entrepreneur team: turning $15 million of capital into a $2 billion valuation, going public, and then sustaining the momentum with flawless execution to now increase the valuation to over $10 billion.

If you read Billion Dollar Unicorns, this general theme will come up many times. While we do have Unicorns that started life as “fat startups,” the “bootstrap first, raise money later” strategy gives entrepreneurs more control over their destinies.

Thus, even serial entrepreneurs often use this strategy, not just first-time entrepreneurs.

Finally, I want to also share with you the story of Aaron Skonnard and Pluralsight in this context. Aaron has built one of the very few EdTech ventures out there that are scaling at Unicorn levels. He discussed his journey over the last decade at our 1Mby1M roundtable. Aaron bootstrapped Pluralsight to $16 million in revenue before raising a $27.5 million Series A at almost a $100 million valuation. From there on, the company has gone on to follow a roll-up strategy with additional funding, gone public, and is currently valued at close to $4 billion. I suggest you listen to the recording of our discussion and read Aaron’s Entrepreneur Journeys story here.

If you go to the 1Mby1M blog, you will find case study after case study of the Bootstrap First, Raise Money Later strategy.

It helps you approach VCs as Kings, Not Beggars.

 

This segment is a part in the series : Best of Bootstrapping


. Bootstrapping to an Exit
. Why is Bootstrapping Important?
. How Can You Play this Low-Probability Game Intelligently?
. Do NOT Go to VCs as Beggars - Go as Kings
. Excess is NOT Required for Success
. Bootstrap First and Raise Money Later
. Some Bootstrapping to Exit Case Studies
. The Buy Side of Bootstrapping to an Exit
. Blitzscaling vs. Bootstrapping
. Bootstrapping to Unicorns
. Cinedigm Acquires Bootstrapped 1Mby1M Company Future Today for $60 Million
. Mailchimp Bootstraps to $600M Revenue
. Bootstrapping from Arizona to $10 Million
. Bootstrapped Basecamp Executes a No Nonsense Strategy
. How Under30Experiences Bootstrapped to $5 Million
. Bootstrapping with a Paycheck
. How Algo.ai CEO Amjad Hussain Bootstrapped using Services from Michigan
. Seed Investors Who Like Bootstrapped Businesses
. How iHeartRaves CEO Bootstrapped a Niche e-Commerce Company to $20 Million
. Bootstrapping with Services
. How The Intern Group CEO David Lloyd Bootstrapped to $13 Million
. How Passageways CEO Paroon Chadha Bootstrapped from Indiana
. How SmartBuyGlasses CEO David Menning Bootstrapped to $50 Million
. Death by Overfunding
. How RainmakerForce CEO Mack Sundaram Bootstrapped Decisively to $5 Million+
. How FormAssembly CEO Bootstrapped a Virtual Company with a Paycheck
. TimeSlips CEO Mitch Russo Bootstrapped to Exit with Sage
. The VC-Entrepreneur Compensation Disbalance
. BioConnect CEO Bootstraps with Sophisticated Strategic Maneuvering
. Tremend CEO Marius Hanganu Bootstraps from Romania
. Gesture CEO Jim Alvarez Bootstraps to $10 Million
. SproutLoud CEO Bootstraps to $30 Million from Florida
. Tuft & Needle CEO Bootstraps to Over $100 Million
. Co-founders Bootstrap Linguamatics to Over $10M from the UK
. Ownership Matters
. Vainu Co-founder Mikko Honkanen Bootstraps from Finland
. Entrepreneur Couple Bootstraps to $10M from Colorado
. Power2Motivate CEO Bootstraps to $80M from Canada
. Financial DNA CEO Bootstraps to $10M+ from Australia
. Big Barker CEO Bootstraps a Niche E-commerce Brand
. PrecisionLender CEO Bootstraps to Over $10M from North Carolina
. Master Bootstrappers with Over $1B in Exits
. Ultra Mobile Founder Bootstraps to Over $100 Million
. Bootstrapping a Two-Sided Marketplace to $10M
. Can You Bootstrap a Virtual Company to Over $5 Million?
. Capital Efficient Entrepreneurs Turn $1M into $80M
. Discussing the Journey Through Failure to Success

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