Most founders will say it’s near impossible to launch and quickly scale a company without outside financing.
Venture capital can help in a big way, providing cash to hire dozens of people and launch national marketing campaigns. But it takes something away from startups and their founders, as well, including board seats, autonomy and equity, which have an impact on daily operations and the amount of cash founders take home when they're acquired or go public.
In 2018, startup and tech companies in the U.S. collectively raised $130.9 billion, surpassing what was raised during the dot-com era. Like other fledgling tech ecosystems around the country, Richmond's early-stage companies are frequently raising new financing rounds. In 2018, Virginia startup funding topped $742 million through 145 deals, led locally by Compare.com's $35 million haul in October.
Even as investment deals pump money into companies at high valuations, a unique breed of entrepreneur is off that spectrum entirely. A group of bootstrapped companies in Richmond have built sustainable and profitable businesses without signing a single term sheet.
For some, like note-taking app Maple, the business model was based around bootstrapping from the outset, after spinning off from a consulting firm.
"As the focus on Maple expanded, we definitely had a discussion and made a deliberate decision about choosing to bootstrap its initial development," co-founder Chris Dawson said. "We tailored the plans and operations for the consulting business to enable that decision."
There was one major reason for the startup to decline venture capital.
The original vision for Maple was an anonymous and confidential space for thinking, "and that was really non-negotiable for us," Dawson said. Early conversations about capital kept coming back to the need to monetize quickly, which would rely on in-app or email advertising to users. Instead, they opted for slow growth.
"The benefit is that we have been able to execute our vision, while adhering to the principles and values we had originally embraced," he said.
On the other hand, having investor money would allow it to do more marketing and other initiatives, and sooner, according to Dawson: "We’re poised for growth and not being able to facilitate that as quickly as possible is exasperating."
Bootstrapping was also always the plan for Naborforce's Paige Wilson, who used a generous bonus check from her investment banking job to launch the venture. It was her first time starting a businesses, so she knew the inherent risks.
"I didn’t feel comfortable asking someone else to put their money at risk until I felt confident that there was a real opportunity," she said. "While I raised hundreds of millions in my corporate career, it’s very different when it’s personal."
Wilson knew that if she had proof of concept and traction, venture capital might be the right route. Now just a couple years in, she's currently considering bringing in outside investors due to the market opportunity.
"I can continue growing in Richmond, or I can bring in seed money to build out an enterprise-level tech platform, attract the right team and put the infrastructure and processes in place that will enable us to scale and take advantage of this relative white space," she said.
"I truly believe the latter is the right choice. And I feel good about it. The equity tradeoff is almost a no-brainer. A smaller percentage of a huge number is always better than 100 percent of not-so-much."
Wilson said relieving some of the financial and emotional stress of ownership was an enticing bonus of giving up equity, and like her, PivotPass co-founder April Palmer thought many times about sharing that load with investors.
The platform, which is used by employees for company wellness programs, had eventually consumed six figures of personal investments from Palmer and co-founder Brig Leland.
"We continued to invest our time and money in organizational growth while lightly exploring outside investment," Palmer said. "However, we quickly found that there seemed to be a threshold that we had unwittingly passed where we had invested enough money to make us a legitimate player in the market, but weren't bringing in enough revenue to attract investors."
Beyond that threshold, self-sustaining growth has its pros and cons for PivotPass.
Palmer said she and its employees are able to learn from dealing with successes and failures head on, but at the same time, those consequences fall squarely on their shoulders.
"I think the thing that we most missed out on was being able to leverage the experience, knowledge and buy-in of others in our ecosystem who would have been just as 'invested' in our success as we were," she said.
For all the entrepreneurs we interviewed for this story, their bootstrapped model was most importantly an educational tool. Palmer said it best, asked if she would do it differently next time:
"These learnings have enabled us to help guide other startups to make better decisions about their funding and growth options, and have made us much more knowledgeable, dynamic entrepreneurs. As the saying goes, 'I never lose. I either win or I learn.'"
