
Kalzumeus Podcast Episode 11: Bootstrapping vs. Raising Money - aaronbrethorst
http://www.kalzumeus.com/2015/02/26/kalzumeus-podcast-episode-11-bootstrapping-vs-raising-money
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paraschopra
My experience of bootstrapping vwo.com for the last 5 years has been the most
phenomenal experience of my life. I've realized that constraint for our growth
is not money, rather learning and understanding what matters in business and
what doesn't. It's slow and gradual learning that I'm enjoying the most.

Last year, I was exploring whether funding could help us grow faster. Talking
to VCs and the firms that got VC funding gave me the perspective that raising
funds is RARELY a one-time thing. Once you raise funding (and dilute 25-30% of
your company), no VC wants that money to be sitting in your bank and earn 0%
interest. So your burn rate increases exponentially and most VCs want their
funding to burn within 18 months. This means that in order to sustain the
company you'd have to raise the next round and dilute another 25-30% of the
company, and this keeps happening until exit/IPO where the investors typically
end up holding 80% of the company and pretty much controlling its destiny. And
remember it was who you toiled day and night to make your dreams successful.

Someone who had raised funding advised me - as long as things are going fine,
you the founder are in control of the company. And if you're not growing fast-
enough (think 100% year on year), the investors are in control. It's not that
VC money is bad per-se, however, I think losing control of your company as a
consequence of external funding is bad. Disruptions happen, new competitor
emerges and you could be thrown out of your own company.

For us, having HQ in India gives us a good cost structure (although funding
scene in India is changing that fast, salaries are getting through the roof)
so we've been able to fund, reinvest profits and grow the company profitably
(and have a nest egg for worst case). However, given the costs in SF / bay
area, I'm not sure how would one go about bootstrapping a company for long.
Would love to hear thoughts from fellow bootstrappers in high cost-of-living
cities/countries?

PS: A bootstrapped company I really admire is Zoho. They're 1700 people and
they say they have two IPOable products within the company. Very admirable.

~~~
michaelochurch
What most people don't realize about VC is that:

First, there are two VC industries. There is the one that funds biotech and
clean-tech and there is the bubble-centric consumer web one that gets all the
press here. The first exists to fill a gap (R&D projects that the mainstream
private sector is too cowardly to try) and isn't sexy because the upfront
capital costs are very high, meaning VCs take a lot of the money, meaning that
founders becoming billionaires is next to impossible. But on the whole, the
VCs in that sector are actually pretty ethical. Obviously, they're in the game
to make money, but they're trying to make it the honest way: by capitalizing
good businesses. The second, sleazier VC industry-- the one with the slimy co-
funding/back-channeling culture that funds a lot of stupid ideas and frat
boys-- is the one that gets all the press here.

As for that sector of VC, they're in the business of taking strategies that
are profitable but illegal in public markets (e.g. market manipulation,
insider trading) and applying them to private stocks that are less well-
regulated. They encourage (and, sometimes, demand) extreme risk taking because
they don't really care which businesses go up and down, they just want
volatility (for it's own sake) in the market, never mind if this leads to bad
decisions and damages the careers of people they view as peasants.

The slimy consumer-web build-to-flip VC will also never leave California. Why?
Because a lot of the note-sharing that VCs engage in is illegal and simply
can't be done except in-person, because it would be too devastating if the
phone logs or emails ever surfaced in discovery. For one of many examples,
they make a lot of back-channel reference calls in deciding whether to fund
someone, and it's a well-known fact of HR that the main (if not the only)
reason to make a back-channel reference call is to violate EEOC provisions.

~~~
flinty
Didn't see the username and while reading the comment a thought came to mind -
this seems like something Michael Church might have written. Looked up and it
was indeed Michael Church

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aculver
I haven't been able to listen all the way through yet, but what a great
discussion for anyone who might be considering raising their first round,
especially for folks who have already bootstrapped a product to a certain
point.

Jay, if you're around on this thread, I'd love to hear what sort of questions
you were fielding from Naval.

~~~
jason_tko
It was really just the basic set of investor questions compressed down into a
very short and high bandwidth discussion. I think the general idea was to see
how familiar I was with all the aspects of the business and the market.

It was at a dinner, so I was two beers in, but from memory some of the
questions and answers were things like:

Q: How do you get new customers?

A: The great thing about MakeLeaps (For context: MakeLeaps is an online
invoice creation and management tool for Japan) is that it's inherently viral,
since every customer sends tens, hundreds or thousands of invoices to other
customers, and each one is an opportunity to introduce MakeLeaps, since we
have a tiny "Powered by MakeLeaps" stamp at the bottom of the email. In
addition, we do paid marketing campaigns such as Adwords and retargeted
Facebook newsfeed ads which we've found to be effective in Japan, and a lot of
content marketing. We're working on partnerships with BigCo1, and BigCo2, and
integration X and Y that could also be a great new way to get in front of more
viable customers.

Kind of thing. Some other questions were just general fact finding such as:

Q: How big is your team?

Q: What's your biggest challenge right now?

Q: Why are you doing this?

Q: Why don't Japanese companies already use a tool like yours?

Q: What's your business model?

Are the ones that I remember of the top of my head. Happy to field any more
questions, and thanks again for listening.

~~~
gwilkes
You got patio11 to move to Tokyo? That's kind of amazing. Great podcast so
far, still listening to it and congrats on the funding.

~~~
harisenbon
It's the better end of the deal, to be honest. He used to live here in Gifu,
and while this is a great place to live, there are many things you have easier
access to in Tokyo.

------
curiously
here's my question to you guys.

the bottom of the curve is painful.

it feels like you are trying to push a boulder and it is moving by
millimeters.

it does move and its not much but you just keep pushing and pushing. sometimes
despair and anxiety takes over, it's never going to work, stupid, i suck, im
fucking it up, find a job.

so how do you manage yourself in those situation?

The toughest problem I discovered was marketing, putting your product in front
of people, getting it noticed.

Not having VC money to spend means you have to manage it yourself. But
marketing I am finding out is TOUGH. In fact it is by far the most difficult
aspect of bootstrapping. PPC and expensive ad buys are out of the question. So
what do you have to get new customers?

Sales cure all. Selling is not a problem if you are dealing with people with
the wallet and mind to buy. You just need to guide them.

But getting those people through the door, building that volume of quality
leads, this is tough.

All in all I feel like bootstrapping is a juggling effort while trying to push
a boulder down a hill so that one day it will start rolling by itself.

~~~
patio11
I think I'll write about this in the future, because this describes my
experience with Appointment Reminder, pretty much to a T.

Do I have a magic answer to it? No. Long, slow SaaS ramp of death all the way.
[http://businessofsoftware.org/2013/02/gail-goodman-
constant-...](http://businessofsoftware.org/2013/02/gail-goodman-constant-
contact-how-to-negotiate-the-long-slow-saas-ramp-of-death/)

Spoiling a bit of that eventual post: one of the hardest challenges for me
with AR was keeping up motivation to grind-it-the-heck-out over the years,
because AR was not an intrinsically motivating problem/market for me. It would
probably be 10X larger than it is right now if it had attracted the requisite
effort from me over the years by being interesting-in-the-absence-of-major-
growth. The next time I do a business, it will be something which will be
certifiably Fun to me every day, for some value of Fun.

Incidentally: depression may be an orthogonal issue to this. Many of us in the
community struggle with it. You're very not alone. Talk to someone -- me, if
necessary.

~~~
sarciszewski
> Many of us in the community struggle with it. You're very not alone.

Very much this.

