1Mby1M Virtual Accelerator AI Investor Forum: Investor Gus Tai on VC Industry Size (Part 3)

Sramana Mitra: This leads to another part of the discussion. As lavishly funded companies emerge, a parallel phenomenon has accelerated this year: this is also the golden age of bootstrapped startups.

People are accomplishing far more, far faster, with significantly fewer resources and less capital than ever before. We are seeing trends such as ultralight startups, solo entrepreneurship, and bootstrapped entrepreneurship gain real momentum.

This raises a different question. Once a bootstrapped startup begins to experience strong growth, what happens next?

Take the example of Lovable. Many of you have probably read about it. Lovable is a rapidly growing no-code software and app development platform. This year, it reportedly went from zero to $200 million in revenue while bootstrapped, and then raised a large round at a very high valuation.

When I looked at this, I questioned whether it would work as well as a venture-backed company. In no-code platforms, there is extensive experimentation. Subscriptions are inexpensive, people try things out, build apps, and tinker. That behavior does not necessarily translate into durable recurring revenue.

Two hundred million dollars in revenue does not necessarily mean two hundred million dollars in ARR. You do not yet know what churn will look like or how sticky the customer base really is. What I hear consistently is that churn is very high in many of these companies.

If you raise large amounts of capital before understanding your true churn rate, sustaining growth becomes very difficult.

Gus, how does this scenario affect venture dynamics?

Gus Tai: You are highlighting what may be the most important question for any entrepreneur: what specific customer need can you serve economically in a way that genuinely delights the customer?

If customers are temporarily interested because of novelty or curiosity, that is fine. But if you assume that curiosity will turn into sustained demand, you create risk. Venture capital can be helpful when you know your model works, you are close to the customer, and you are scaling something proven.

In this period, it is especially important not to confuse novelty with enduring value. The positive side is that experimentation is much cheaper today. Staying lean, refining the model, and understanding the customer before scaling makes a lot of sense.

Sramana Mitra: I want to share a contrarian perspective.

Venture capitalists create value through company valuation at exit, not through cash flow. Companies must become executable and grow quickly until exit. After that, long-term sustainability is not the VC’s primary concern.

For bootstrapped entrepreneurs, the perspective is different. Cash is king.

If you enter the market, see rapid revenue growth, and generate cash flow, that gives you ammunition to experiment. Cash allows you to explore options and refine your direction.

The platform we are using today is Zoho. Zoho began as a small network management software company. It was not growing fast, but it was profitable and generating cash. The founder used that cash to experiment with CRM software in the mid-2000s, competing with Salesforce at one-sixth the price.

That move propelled Zoho into the market. The revenue proved durable, and over time Zoho layered product after product, building a portfolio of 20 to 30 affordable offerings for small businesses. Today, it is a multi-billion-dollar, fully bootstrapped, enduring company.

The key point is that Zoho’s early cash flow funded experimentation.

For those building bootstrapped businesses today, this is a golden age. Ultralight startups, rapid experimentation, and LLM-based products make it possible to build fast-growing businesses quickly. These may not initially generate durable revenue, but they can generate cash that creates optionality.

From a venture perspective, churn is a serious risk, and you should not raise venture capital without proving your business is enduring. But if experimentation generates cash, continue collecting it. That cash gives you flexibility.

Gus Tai: I appreciate that perspective. Venture capital is a financial resource designed to scale companies quickly. At its core, it is a finance business driven by buying low and selling high.

As an entrepreneur, if venture capital is useful, you can access it by selling equity and applying that resource. The opportunity today is that bootstrapping is far cheaper than it was in the 1990s.

Back then, venture capitalists funded early company formation because it was expensive to start companies and there were fewer alternatives. Today, most venture dollars flow into capital-intensive AI businesses where capital itself is a moat.

Large venture firms are less suited to funding very small startups, while bootstrapping has become far more accessible. Entrepreneurs can bootstrap, focus on learning quickly, and apply those insights effectively.

If you reach meaningful scale with durable revenue growth, venture capital will still be available. But spending excessive time raising venture capital early is often counterproductive, especially when experimentation is so inexpensive today.

Part 1 | Part 2 | Part 3 | Part 4 | Part 5

One Million by One Million (1Mby1M) is the first global virtual accelerator in the world, founded in 2010 by Silicon Valley serial Entrepreneur Sramana Mitra. It offers a fully online entrepreneurship incubation, acceleration and education resource for solo entrepreneurs and bootstrapped founders working on tech and tech-enabled services ventures. 1Mby1M does not charge equity, offers an AI Mentor available 24/7 in 57 languages, and offers a compelling alternative to Y Combinator and other equity accelerators.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator AI Investor Forum: Investor Gus Tai on VC Industry Size
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