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 a few ways entrepreneurs often go about getting the resources they need: pitch competitions, accelerators and, most commonly, either bootstrapping or venture capital funds.
Rhode Island is in a unique geographic area in that it is close to two major cities with considerable VC resources, Boston and New York. And while the Ocean State does have its share of funding entities, a consistent critique of the ecosystem is that it (currently) doesn't have enough.
So, where does that leave Rhody 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 Anne Holland, who helped establish media brands — "a half dozen ... including events, business data services, magazines and daily news services," she told Rhode Island Inno. Her current firm publishes MJBizDaily, a resource for those entrepreneurial leaders in the cannabis and industrial hemp space. It's been consistently successful, one of the fastest growing business publications in the U.S. since 2011.
Originally founded in Rhode Island, Holland and her business partner relocated the company to Denver to be more centrally engaged with the industry they cover.
"We are privately held; we have no outside investors and yes, we are continually approached by private equity," she said. "It’s a truism, once you don’t need them, they want you."
MJBizDaily isn't Holland's first bootstrapping rodeo, either.
"When I started my first company, it was early 2000 and I pitched private equity and angel investors like crazy because that’s what everyone was doing then," she said.
"Don’t do it because that’s what everyone does. Money can be so blinding; people don’t see the strings attached."
Also influencing her original moves was seeing others' success at raising money, and lots of it; she had served as an expert advisor to a startup who had done just that, right before she decided to launch her own.
"They landed lots of money, so I thought I could as well," Holland said. "Turned out they had something I didn’t, which was they were men. They were utterly inexperienced in business, which is why they’d hired me. I was blindsided by the sexism in the investor community. I’ve heard it’s slightly better now, but honestly not much."
The answer then for Holland was relying on her own resources.
"I cashed in my 401K, maxed out my credit cards, sold five percent of my stock to my father for some more cash, and bootstrapped the rest," she said. "Within the year it became super obvious that I had been incredibly lucky. The dot com crash happened, and all of my many (male) friends who’d landed investors for their companies has a far worse time because the investors started to stick their oars in. Lots of companies floundered because investors taking over didn’t have the right experience (and money often thinks it's smarter than it is)."
Besides her situational luck, Holland described the long-term practical wins she sees are a benefit of bootstrapping.
"It’s harder to keep to your mission and vision when you suddenly have a big fat bank account. You can lose discipline quickly, especially when investors are telling you to spend their money to grow faster rather than putting some away for a rainy day or if the market softens," she said.
The move, she said, was one she's repeated and that she's been consistently pleased with. Not only has it allowed Holland and her partner to have a clarity of mission, but also singular control over their work and direction of their company's future, ultimately building a foundation for her company that gives its leaders considerable freedom.
"We both put in our own savings and then grew the company very carefully, never buying anything or hiring anyone we could not afford," she said. "We have zero debt. And, we have saved nearly every dime of profit for years so whenever we want to invest in growth or M&As, we can without going to someone outside to bankroll it. ... If we ever want to sell the company or go public, it will be on our terms at our pleasure."
Holland added that if entrepreneurs shouldn't hamstring their dreams because they are unable to bootstrap like her company did.
"If you absolutely require outside funds because your launch or expansion is utterly impossible without them, then take the money," she said. "But otherwise, avoid it. Don’t do it because that’s what everyone does. Money can be so blinding; people don’t see the strings attached."
At the end of the day, entrepreneurs must do the leg work to understand what funding option works best for them, and an issue, Holland continued, is that there isn't enough business education to better navigate these waters.
Another thing that needs to change? Acknowledgement of the "middle road" companies.
Holland explained. "I also think there’s a misconception about how big one should get," she said. "Private equity will always want you to go for hundreds of millions. That implies there’s little value to firms and business ideas that could naturally flourish better at a smaller size."
Not true.
"It’s like, either shoot for the stars or go nonprofit," she continued. "I think there’s a middle road, a small, healthy company that late stage capitalism isn’t recognizing."
It's a trend that's caused her to change how she invests, looking instead for those "smaller companies that can change a neighborhood, a city, a niche for good, without having to be the 'Next Huge Thing.'"
Holland's advice to those entrepreneurs looking to bootstrap? Utilize friends and family, credit cards, savings.
"Max out your own resources first," she said. "Keep your day jobs (I worked as a consultant for a year while doing my first company). Understand you’ll take no salary and you’ll live on nothing and work seven days a week for a while."
"I know this is hugely privileged though — it’s presuming you have those resources," Holland added. "Not everyone does and that’s deeply unfair. "
