In praise of bootstrapping and breaking the VC narrative
by Martin SFP Bryant, Founder of PreSeed Now. Originally published on PreSeed Now
Guest post by Martin SFP Bryant, Founder of PreSeed Now. Originally published on PreSeed Now.
Bootstrapping has traditionally had a bad rap in the tech startup world.
While it might have been acceptable for founders to self-fund their startups for a short time, the common narrative was that a pre-seed or seed investment should quickly follow if you want to be seen as a credible founder.
That narrative was led by the startup culture in Silicon Valley, where early-stage funding tends to flow like water, and a culture of ambition to build mega-scale businesses exists in precise lockstep with the demands of the venture capital business model.
VCs need entrepreneurs to be ambitious, and capable of building multi-billion-dollar businesses, because thatâs the way they end up with a stake in the occasional mega-hit company that delivers for their own investors and makes up for all the failures they back along the way.
The spread of the Silicon Valley VC mindset
Silicon Valley focused tech media built a global audience thanks to Web 2.0 and widespread interest in platforms like Facebook. And as outlets like TechCrunch, ReadWriteWeb, and GigaOM grew, they helped to teach founders and ecosystem builders by osmosis that the Silicon Valley way of building startups was the way.
It was never explicitly framed that way, and venture capital had been growing around the world for decades already, but by focusing on funding rounds and the VC world, and linking them directly to the notability of a startup, tech media helped shape foundersâ ideas of what they needed to do to build their businesses.
Somehow, it often seemed like other parts of the world were failing if they didnât have an ecosystem that could one day rival that of the San Francisco Bay Area.
Whether you were in Bristol or Beirut, you would read funding round news and VC interviews from the US, and wonder where your countryâs unicorns were going to come from. Sure, in places like Europe there were promising signs of success, but nothing that could become the next Microsoft.
Four headlines from the past nine years, all asking the same thing
A decade ago, in the pre-Brexit days, I found myself invited to meetings in Brussels about why the EU didnât have its own Google or Facebook. As the headlines in the image above shows, that question hasnât gone away.
I wonât go into the reasons why such giants arenât in plentiful supply in Europe. Youâve either heard them a million times or can look them up on, er, Google. But while some in Europe might still look enviously across the Atlantic at US startup culture, Iâve increasingly picked up on a strain of thought among some entrepreneurs in recent years that looks at things differently:
Why should you have to build a startup the way VCs want you to?
Beyond the âlifestyle businessâ sneers
âBootstrappingâ is often seen as a bad thing in the traditional, VC-led framing of the startup world. âWe couldnât raise a round so weâre bootstrappingâ.
Likewise, if youâve spent enough time around VC culture youâll have heard someone sneer about how a certain startup would âonly ever be a lifestyle businessâ⌠as if it was a bad thing to have a business without a bunch of investors on its board and cap table, bringing in enough revenue to give its founders a good life and perhaps even provide jobs for others.
Itâs time, once and for all, that we accepted that VC is just one way of building a business. If you want your company to one day get listed on the stock market or acquired for billions of dollars, play the VC game. But letâs not think less of people who donât feel like a good fit for that approach.
Mailchimp is often hailed as the ultimate bootstrapped startup. It was acquired by Intuit for $12 billion in 2021, having never taken outside investment.
The success of Mailchimp shows you can get a big outcome from bootstrapping, but also itâs an outlier. In most cases, you wonât get venture-sized outcomes without venture capital. As long as we accept that âlifestyle businessesâ are fine, thatâs okay.
And bootstrapping has become a reality even for those who in recent years would have been able to easily raise pre-seed money for their venture-scale ambitions.
Nyree Trimbel of Chimera
âWhat we're seeing, particularly with the current economic climate is, it's harder and harder to get investment,â Nyree Trimbel, a marketing consultant who works with early-stage startups, told me this week.
âTraditionally angels would invest very early on, but we're seeing angel groups ask for more and more traction, more and more revenue, bigger monthly recurring revenue, bigger annual recurring revenue; probably where you'd see early stage VCs sit.â
Who supports bootstrapped startups?
I spoke to Trimbel because sheâs just co-founded a new business aimed at helping early-stage founders bootstrap for longer. Itâs called Chimera, named after the ancient Greek mythological creature made up of parts of other animals in something of a chaotic state (âthe opposite of a unicornâ, as the company puts it on its website).
While there are plenty of accelerators offering support to early-stage startups, they tend to focus on investment readiness, which means theyâre very much aligned with the VC business model and âunicorn huntingâ.
And so Chimera is aimed at supporting those startups that donât fit the VC mould. Itâs not the only one in the UK, even if thereâs hardly a wealth of choice. OneTech, for example, runs a Bootstrap School course for tech companies that want to grow without external funding.
âWe seem to congratulate and almost fawn over businesses that get investment,â says Trimbel. âBut the reality is that those businesses that have got investment from a VC are in for a long, hard, brutal slog. Thatâs not necessarily a pair of shoes that I would want to be sitting in.â
âBut we don't even talk about the businesses that win the big contracts, or have the 100% renewal rate, or a high referral rate, or are organically turning their customers into advocates and that is the stuff that's really hard.â
The truth is that money talks, and big investment numbers make for juicy stories. A tech company without outside investors that lands a big contract might get some niche trade press interest, or appear in their local business news outlet, but the big startup news sites are unlikely to be interested.
Thatâs okay. A funding round is usually a bona-fide news event that can help tell us something about the wider tech market. A nice, chunky profit for a bootstrapped company is just far less interesting to a wide audience.
And so the story of VC as the ârealâ way to do startups is likely to continue to prevail. Heck, here at PreSeed Now weâll continue to focus on profiling those investment-ready startups. But that doesnât mean founders need to take that VC-led narrative to heart.
Hereâs to building the business you want to build, the way you want to build it, without feeling you necessarily have to align it with what will make a lot of money for someone else.
We definitely need an alternative to VC funding. Obviously, it is a steep climb to build a big business without VC, but there is a way to do it. Having more specialized bootstrap accelerators would be hugely helpful (Especially in markets that haven't previously got a lot venture money)!