Editor’s Note: The past few weeks, Rhode Island Inno began its in its “Bootstrapping in Rhode Island” series, where we heard from different entrepreneurs who raised their own funds (without venture capital) in the Ocean State. Here's part one and part two. Today, we’re highlighting the perspective of another Rhode Island bootsrapper, Annette Tonti of The Innovation Scout.
Annette Tonti is a serial entrepreneur based in Rhode Island. Her first company, Blue Streak, raised $27.5 million from venture groups in Boston and New York City. Her second company, MoFuse, a global publishing network, raised funds from a local angel network.
But now more than two and half years into her third startup, The Innovation Scout, a platform that matches startups with corporations by using an artificial intelligence, Tonti has chosen to bootstrap — at least for the time being.
Her decision was based on her intimate knowledge of the investing process, which taught her not to go after funding prematurely.
"To be doing it by bootstrapping, you learn how to focus on the essential items to spend money on."
The Innovation Scout’s business model is based on long sale cycles, and in today’s funding environment, Tonti doesn’t know any startup getting the attention of venture capitalists — or even angel networks — until they have provable traction.
“Many companies can build a business and survive, but that's not what gets an investor interested,” Tonti told Rhode Island Inno. “They really need to see that you are going after a big enough market, with a unique offering such that they will be able to make eight to 10 times plus their [initial] investment in a reasonable time.”
The Innovation Network operates by curating startups for larger businesses based on one’s that are the best fit for that business, and then making the introduction.
The company does this by using artificial intelligence, machine learning, big data and a natural language interface to match a larger company’s challenges to the right entrepreneurial partner, while also providing a custom online and mobile innovation process.
“We are in a market opening the doors at the largest corporations like Mondelez, General Dynamics and Dupont,” said Tonti. “These sales processes take some time so it wasn't apparent that venture folks would be interested until we actually get to some level of repeatable monthly income. I'm not ruling out investors by any stretch — we have to get the signals that it will be worth their time, though.”
When it comes to funding, timing is everything, because funding certainly has downsides.
According to Tonti, It is a huge time commitment for a founder and/or CEO to raise funding, and often takes months and sometimes years away from actually running the company.
Additionally, bootstrapping does not allow startups to move as fast on things, which can actually be a silver lining, she said.
“You won't spend money on unnecessary things," said Tonti. "To be doing it by bootstrapping, you learn how to focus on the essential items to spend money on."
Not going for funding right away also allows a startup to make a number of important decisions about your business that you can’t always foresee in the very early days.
For instance, said Tonti, the more time you have, the more you can examine the potential scalability of your product or service, whether there is a willing market and whether or not you need to pivot. Time also allows a startup to put together a better team or test the one they have built.
Additionally, more time provides more opportunity to make revenue, which, as Tonti mentioned above, is one of the main factors that will catch an investor’s ear, as some venture capitalists don’t invest in pre-revenue companies.
“Proof that someone will pay you and pay again is the key,” said Tonti. “Sometimes you may have a few years to prove the technology works before you get a paying customer. This is okay; however, you want to make sure you are addressing a very large market and that your unique advantage is protectable.”
