Thompson Aderinkomi decided not to turn to venture capitalists when seeking funding for his new startup Nice Healthcare.
"We've considered venture capital, but for us, it's a last resort," Aderinkomi told Minne Inno. "Right now, we're growing organically, and because of that we don't need anyone's permission to be alive."
The decision to forgo traditional startup funding was a no-brainer for Aderinkomi after his last experience with VCs. He co-founded and led RetraceHealth as CEO for over three years. During that time, the company successfully raised two rounds of capital, totaling around $9 million. Then in late 2016, Aderinkomi was abruptly fired by investors, who said RetraceHealth required new leadership. The company shut down several months later.
"I got the short end of the stick," Aderinkomi said. "It's important to have good partners. I didn't have that and it destroyed my company. That doesn't mean all VCs are bad. I just picked the wrong people."
Raising venture capital is a significant moment in the life of any startup. Many founders believe that it's nearly impossible to scale a company without outside financing, especially if they want to build it quickly.
Venture capital provides numerous benefits for young companies, such as the ability to hire dozens of people within months, launch massive marketing campaigns or ramp up product development. But venture capital isn't free of course, and startups often exchange equity and board seats, impacting the amount of cash founders receive when their company is acquired or goes public for the infusion of capital.
"We don't need anyone's permission to be alive."
Minnesota startups are bringing in more and more venture capital every year, with local companies raising over $700 million in VC in 2018, according to PwC's MoneyTree report.
At the same time, there's a small but growing contingent of entrepreneurs choosing to bootstrap their companies through revenue from the business, personal savings, salary earned from a day job, traditional debt or other forms of income.
Aderinkomi and his co-founders, fellow former Retrace employees Genevieve Swenson and Allison Nelson, used a combination of debt, cash and a $350,000 investment from Indie.vc to build Nice Healthcare. Much like Retrace, Nice operates under a direct primary care model in which nurse practitioners provide video and in-home visits.
Nice has grown past where Retrace was when it shut down, Aderinkomi said. Just over a year after launch, the company has around 10,000 lives under management and about 100 Minnesota-based clients. It is also approaching $2 million in annual recurring revenue.
Aderinkomi is quick to add that bootstrapping hasn't been easy. But it's given him and his co-founders chances and opportunities they didn't have as a venture capital-backed company.
"There haven't been any surprises or gotcha moments," he said. "We're growing at our own pace. To have a second chance like this is a dream."
Seed Funding Without VC
Rob Walling is no stranger to bootstrapping companies. As a serial entrepreneur for more than a decade, he’s built and exited several successful SaaS startups with minimal outside funding. Most recently, he sold his marketing startup Drip to Leadpages in 2016.
“It’s hard to build a startup,” Walling said. “When you bootstrap, you tend to do that on the side. For a lot of people, that means burning the midnight oil for five years. It’s a really difficult way to start a company.”
In order to help fellow bootstrappers, Walling started TinySeed, which he says is the first accelerator program designed for self-funded software startups.
Like other accelerators, TinySeed takes a small amount of equity in a company in exchange for mentorship and funding. In this case, participating companies receive between $120,000 to $160,000 depending on the size of their team.
"Bootstrapping is certainly not for everyone."
TinySeed companies don’t need to exit for the accelerator to work, Walling explained. The program is set up in a way that will hopefully make founders and investors happy. The companies don’t need to sell in order for investors to get a return. Instead, investors profit through a dividend/share model.
“When it comes to venture capital, you need to know what you’re getting into,” Walling said. “The media glorifies raising funding so much that it seems like the end goal to some people. But it’s not. It’s the start of the journey. And it only gets more difficult from there.”
Walling's Drip co-founder, Derrick Reimer, decided to go the bootstrapping route when he started his new company, Level Technologies, earlier this year. In addition to bootstrapping Drip with his fellow founder, Reimer also bootstrapped his other startup Codetree Solutions, which he sold in 2016.
"Bootstrapping is certainly not for everyone," Reimer said in an email. "Every entrepreneur is optimizing for something different: Some want to get as wealthy as possible. Others aspire to minimize the number of hours worked, and some are happy setting a profit goal and not growing beyond that."
Now on his third tech startup, Reimer knows that bootstrapped companies often don't grow as quickly as their venture capital-backed counterparts.
"There's just less fuel to throw on the fire," he added. "As a bootstrapped founder, if you don't have the luxury of personal savings or a side business with free cash flow, you often have no choice but to start out building on nights and weekends. This can easily put a strain on relationships and personal health."
Bootstrapping With Beer
Tech companies aren't the only ones bootstrapping their businesses. The same strategy was used to build Lift Bridge – the seventh largest brewery in Minnesota.
Stillwater-based Lift Bridge was founded in 2008 by four homebrewers. They began by brewing for friends and family, and eventually, they began making bigger batches and sold their first keg of beer in September 2008.
"At the time, we were friends in a garage homebrewing and playing poker, but there was a very entrepreneurial spirit there," said Brad Glynn, Lift Bridge co-founder and current VP of Marketing and Operations.
When it came time for the friends to begin scaling their business, they decided to bootstrap.
"Bootstrapping was a way to use our own resources and really not overextend ourselves or jeopardize our future," Glynn said. "And we still have that mindset today. We have 20 full-time employees and about 25 other part-time workers. Now, we're making sound financial decisions to make sure we don't affect their future and their families."
Glynn said that within the last five years, Lift Bridge has been approached by several potential investors interested in backing the brewery, but turned them down.
"We didn't want to take the risk of not fulfilling payback requirements," he said. "Especially early on. We didn't know if we were going to produce 5 barrels or 25,000 barrels. We wanted to get a good handle on our vision and what we wanted to do."
Bootstrapping has allowed Lift Bridge to remain independent for more than a decade and scale on their own terms. But since the company reinvests almost every dime it makes, according to Glynn, it forces the founders to be more frugal and tactical in their decision making. In order to gain traction in Wisconsin, for example, Glynn drove around the state for several weeks visiting trade shows in person rather than hiring a marketing team.
Forgoing outside investment also has meant that Lift Bridge has watched some of its capital-backed competitors grow faster, buy flashier materials and produce more barrels.
But that hasn't stopped Lift Bridge from becoming one of the top 10 largest breweries in a state with more than 170.
Today, Lift Bridge distributes beer in Minnesota, Wisconsin and North Dakota and is on track to produce 23,000 barrels this year, Glynn said. Last year, Lift Bridge announced an expansion into a new facility that is expected to open sometime in 2019.
"It's a labor of love that requires a ton of work, a lot of hours and tapping all the resources you have at your disposal," Glynn said. "But there's nothing more rewarding."
