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 tech hubs around the country, the DMV's early-stage companies are constantly raising new financing rounds. In 2018, D.C.-area startup funding topped $2 billion – a record amount – through 223 deals, led by Cava's $248 million haul as it geared up to acquire Zoe's Kitchen last fall.
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 the D.C. metro region have built sustainable and profitable businesses without signing a single term sheet.
For TwentyTables founder Alex Cohen, his online meal marketplace startup was designed to bootstrap.
"We derive actual revenue from a product in the market," he said. "But it was only after a series of discussions with advisors and early investors that it became clear that bootstrapping, for as long as reasonably possible, was the best course of action."
He said the pressure of earning that revenue forced the company to focus on the importance of its customers – restaurants and hungry consumers – because their engagement was the only way for TwentyTables to grow.
"Starting a startup is all about execution," Cohen said. "And when it’s revenue that keeps the lights on, as a team, you wake up every morning motivated to execute at the highest level."
At some point, he said, institutional investment in some form becomes necessary and beneficial. When that time comes, he'll look for qualities in investors that mirror those he values in team members: shared vision, strategic alignment and a passion for TwentyTables' mission to end hunger.
"Without the presence of all three, the relationship, whether employee or investor, is likely not a good long-term fit."
Over at Quorum, a D.C.-based startup that makes a CRM system for public affairs, co-founder Alex Wirth plans to be equally picky if venture capital is needed.
"We would need to find something that would have such a major impact that it would be worth the time, energy, and effort to raise money and would have the ROI that a venture firm would be looking for," he said.
Wirth and co-founder Jonathan Marks initially bootstrapped the company out of their Harvard University dorm room because they feared investors would want them to drop out. That decision became a benefit for the young, gritty entrepreneurs, as they joined TwentyTables in realizing the benefits of pressure.
"With investor money, you can keep the lights on and keep pursuing things that don’t work," Wirth said.
"The greatest benefit of not having investors' money is it forces you to operate a really sustainable and healthy business, because you can’t do things that are not profitable. It forces a discipline that you have to get it right. You have to have a good product that has product-market fit, you have to have customers that are paying for it, and you have to set up a business model that is sustainable in the long run."
With a combined $80,000 from various pitch competitions, Quorum originally launched with the help of a few prizes and grants. That sort of alternative funding is becoming more common, and fueling Maryland entrepreneur Alex Smolen's quest to build a personal flying vehicle for his startup Scoop Aerospace.
The young engineer recently completed round two of the Boeing-sponsored GoFly competition, which includes phased funding for prototypes and testing. Before entering, he made sure that Scoop would keep its intellectual property and equity. Regardless of the outcome, he plans to use the remainder of the funding, testing data and Boeing resources to continue developing the Pegasus 1 flying vehicle through his startup.
In a previous interview, as he entered the competition's second phase, Smolen summed up the gritty perspective with which all the founders we interviewed for this story agreed: A lack of capital and immediate expertise is by no means an unconquerable obstacle.
“I believe anyone can teach themselves anything – we as humans are a lot more capable than we might initially think,” he said. “The person who’s going to win this competition, they’ll be just like me, so why not me?”
