The ingredients for a good startup are pretty straightforward: a great idea, vision to bring it to life, a few great people to give the concept legs — and money.
There are few ways entrepreneurs often go about getting the resources they need: pitch competitions, accelerators and, most commonly, either bootstrapping or venture capital funds.
Cincinnati is consistently touted as one of the best cities to launch a startup in, may it be within the U.S. or the Midwest. However, while it does have its share of funding entities, a consistent critique of the ecosystem is that it (currently) doesn’t have enough. Consider the Powderkeg Tech Census, which found there was an even disagreement as to whether there was adequate access to seed funding (40 percent yea, 40 percent nay, 20 percent undecided) and a 40 percent/28 percent split favoring “disagree” when asked if there was adequate access to growth capital.
Overall, 71 percent of participants said they “struggled to raise funding in Cincinnati,” with the majority of represented companies adding that they had either only raised a seed round of funding or hadn’t participated in any funding rounds at all. While the tech census certainly isn't the end-all, be-all voice on the matter, it provides an interesting metric.
"Getting great terms or needing to accelerate developing or hiring could change our course, but we don't want to sacrifice strategy or implementation for more capital."
So, where does that leave Cincy entrepreneurs who don’t (or can’t, or don’t want to) engage with VCs? We checked in with area founders who chose to bootstrap their companies to both better understand the move as well as the state’s fundraising landscape. You’ll hear more from them in the week ahead.
First up is Bo Howell and Alec Cheung, co-founders of the 2018-born CCO Technology. Its goal? Providing "SEC-registered investment advisers with automated compliance tools and complementary consulting services." The company's SaaS application is for middle-sized advisers, who, Howell and Cheung told me, are 85 percent of the market and "are vastly underserved."
In its six months of existence, CCO Tech has grown from two team members to nine and expanded its product line, and did it all by building a foundation via bootstrapping.
"We initially started the company knowing that we would need to bootstrap it for at least the first year," Howell said. "Alec ... and I had never launched a tech startup and we didn't have a ton of connections to Cincy's startup community."
To remedy that, the team spent a considerable amount of time filling in the gaps, learning about the ecosystem at a city level (Cintrifuse and CincyTech, for example) and a regional one (Bunker Labs).
These conversations with helpful entities included VCs in both Cincy and in other area metropolises, like Columbus, Indianapolis and St. Louis.
"We received valuable feedback on our business plan, market, etc.," Howell said. "But for many of the VCs, we didn't have enough operating history to pass their screens; they didn't want to invest at the pre-seed or seed stage. I found that disappointing because a small amount of funding at very early stages goes a long way."
The more discussions they had, the more they realized they would have to "be prepared to carry the firm on our backs." At least, they felt, financially speaking.
The next step for the team was forming an advisory board of experienced area entrepreneurs.
"Many of them recommended bootstrapping as long as possible for a variety of reasons," Howell said. "Alec and I had enough capital to get the company started and through its first few products. ... Our primary focus was on building our product and getting into the market, not fundraising."
It was around this time that the CCO Tech funding plan shifted slightly to include a strategic investor, Global Rhino. Sure, the entity brought in some funds, but the firm's added insight and network were just as paramount for Howell and Cheung.
"Dina [Tantra, of Global Rhino] and Mark [Baltimore, ditto] have since helped us with our longer-term strategy, corporate governance, sales and marketing; they feel less like an investor and more like a partner in the business," Howell said. "They are also taking a more expansive and longer-term view than many VCs."
As for the future, CCO Tech looks to continue to engage a flexible funding strategy.
"At its core is our willingness and ability to continue bootstrapping (and growing revenue over the past quarter has helped), but we're open to funding from angels, VCs and other institutions," Howell said. There have been conversations about other strategic investments, too.
But the goal, ultimately, remains the same: "to grow smartly," Howell said.
"Getting great terms or needing to accelerate developing or hiring could change our course, but we don't want to sacrifice strategy or implementation for more capital."
