Bleeding Edge

Do you want some wisdom from up high?

Here it is from the mouth of the Wise Man up n the mountains of Tibet, or from his next of kin in Spirituality — at least as far as StartUps are concerned.

And by the way, please remember that for the purposes of this article the initials VC, do not mean Viet-Cong. Nor does VC necessarily always mean Venture Capital.

VC, actually means Vulture Capital. And when referring to a person it means Vulture Capitalist.

Capice?

Please repeat this Dalai Lama worthy mantra (aphorism) after me, ten times while meditating like the Dalai Lama wearing appropriate saffron robes, and smelling the incense emanating from the ten thousand incense burners in yak butter, and the hundreds of Buddhist monks ringing cymbals, and blowing the conches, in a cacophony of dharma.

Or in case you are bereft of the golden robes, and of all that pomp and circumstance and without hundreds of friends to play the Buddhist monks — simply sit as you are, closer your eyes, and repeat after me:

“It’s possible to get a tech-enabled business off the ground with no capital.
It’s feasible to scale a tech business rapidly with very little Angel capital.
It’s often in the founder’s best interest to even limit the amount of Angel capital they take.”

Do this ten times each day upon waking up and before going to sleep and you will internalize it eventually … without having to migrate to Tibet in order to seek enlightenment, and maybe just get a case of really cold feet.

So keep repeating after me:
“It’s possible to get a tech-enabled business off the ground with no capital.
It’s feasible to scale a tech business rapidly with very little Angel capital.
It’s often in the founder’s best interest to even limit the amount of Angel capital they take.”

Now we all know the syllogism that Vulture Capital has powered nearly every major tech company from Microsoft & Apple to Amazon & Google and beyond…

But what you do not know is also the fact that VC capital has killed far more companies than what it has helped to grow.

And the purpose of this juxtaposition is to show that Angel Capital has been far more beneficial than Vulture Capital has ever been for the world of Startups, because all of these companies that we mentioned above have all had received Angel Capital early on and thrived well ahead of receiving the aforementioned Vulture Capital that usually came just as they were online for success and fo an IPO.

So please remember that the takeaway here is that you don’t need a penny to get started, and that you certainly do not need any permission from VC funders to start scale a Tech startup.

So the next time you pitch your elevator pitch at a VC and he tells you that they “pass” please remember these ten principles to follow, because Vulture Capital is a hell of a drug, and it’s possible to overdose on VC, but for most founders that is a first world problem. More often the question investors hear is “how do I get a VC to back my startup?” These founders aren’t worried about how overcapitalization will make their IPO prospects trickier — they’re scrambling to get someone, anyone, to sign their first term sheet.

There’s a widespread belief among founders that venture capital is a precursor to success. VC is a common denominator of the most successful tech startups, but it isn’t a prerequisite, especially at the early stages.

Entrepreneurs can prove out quite a bit with little Angel capital and bootstrapping and in some case no capital at all. Vulture Capital won’t make your company better, or make you smarter.

So why hassle and risk everything for it?

Here Are the Ten Most Important Reasons Why You Should Avoid Building your StartUp Business around Venture Capital Fueled Growth.

Now we are here to help illustrate how startups can move forward, per the Dalai Lama rules of StartUps and so as in all Buddhist things we try to count in the fingers of the two hands — ten in all. At least for those of us who haven’t lost any fingers by sticking it to where it doesn’t belong.

1) Too many founders orient their businesses around venture capital from day one, and that is why most of their startups die an ignoble death. You don’t need permission from funders to found and scale a startup. You just go ahead and do it.

2) First of all, the smart startups figure things out, get solid on their innovation feet, and go out to test the market place. Afterwards they must focus on iteration of their product or process, and validate a product market fit. After that is done, and their theories have been validated — is worth their time and effort to go out and ask for Venture Capital infusion.

3) Startup CEOs and Founders, today ask for Venture Capital just to figure things out. And of course they never get it and thus the Startups die off from luck of Founder’s effort to find their way out of the box, because they focused on solving the wrong problem. Namely that of finding VC money. Stupid, stupid, stupid.

4) VCs of course know that outside of Biotech, new pharma drug discovery, Rocketry and Spaceship building startups, this is usually the wrong decision, and they pass on these fools, thus strongly reaffirming the “Stupid” designation for those founders.

5) Bootstrapping your company and thus making progress without external monetary resources besides Angel funding, is always the best way to drive the vultures away and instead get the requisite following of real Venture Capitalists that will fight and beg to take an investment position within your company. Smart eh?

6) Still, today, the best early stage companies choose to raise money from Angels and avoid the Vulture Capitalists for protracted periods of time, or until they feel strong enough to dictate the terms of the deal… The law of attraction dictates that’s how it’s done. Let’s kill it dude.

7) That way, when the Aforementioned VCs, do decide to raise money from the aforementioned Vulture Capitalists, they can have both their pick of the litter, and their pick of the terms. Founders RULE dudette. You too can RULE if you choose to be an Angel funded Startup and bid your time while developing your market.

8) Still the best StartUps must set their own terms with investors, no matter what the circumstances. That includes Angels — since it is the Founders that are the sellers of the Business ownership stake in the StartUp.

9) After all, the top StartUps also know how to screen and rather carefully choose their Angel Investors, for the simple reason of Chemistry ROCKS. If you are meeting the mutual working relationship’s “Chemistry” requirement — then the Startup will flourish. If not — then it’s curtains or worse.

10) The really mature Angel Capital Money managers know that they should never influences the burn rate, or the run rate, of a healthily growing and organically evolving StartUp. Contrast that with the Viet-Songs, sorry the VCs who are apt to screw things up, immediately as soon as they come on board, because they plan for their own Fund’s Exit, and not for the StartUp’s ICO, or IPO, or organic growth and longevity.

Longevity of a sustainable business is anathema to the Vulture Capitalists and the Smart serial-entrepreneurs and strong CEOs, and Founders know that. And that is why their interests and the the interests of the Startup are not aligned with the Vulture Capitalists out there, but are perfectly aligned with the Angel Investors who sit on the same side of the Board with them.

In conclusion you should make do with your Angel Capital for as long as you can, and make it last alongside your serious bootstrapping, and always try to resist the temptation to raise Vulture Capital money for it’s PR sake alone, and for the validation that you get when it is showed upon you.

Because thinking that you then the other schmucks out there, is not Buddhism, and the Dalai Lama will punish you for it.

Especially if you seriously go ahead and get the Lambo with my money thinking that you are somehow a better driver, and you can now seriously become the Stoner Slacker that you always wanted to be, or at least from the moment the cash rolled in — please remember that more Lambos wrap themselves around the trees than any other kind of automobile.

Is it Karma that is the bitch, or You, that thinks it’s a smart ides to smoke some weed and then get behind the wheel to drive a certain untamable automobile?

So, I know that you’ve got your eyes on that seriously messed up, and pimped out Lambo automobile — but perhaps you can still get another ten years out of your old Honda Accord…

Capice?

Live with it for a while longer and avoid taking the VC cash and running to Brazil where the models are playing volleyball on the beach in Rio wearing only “dentofilo” (=dental floss) bikini swimming suits.

That too can wait.

Maybe…

Of course You aren’t necessarily going to try to bootstrap a business in perpetuity, but one must time things so that this event happens at a time of strength and not of timidity and stress.

One needs to travel to Thailand once a year for reasons of serious scientific study into the human anatomy, and zoology…

But that’s bedsides the point of this post…

Please stay focused here with me.

So here are three dozen examples of StartUp companies that started with a few thousand dollars, some Angel Capital, and the Founders sweat equity, and went on to become exemplars of what we can all see as the most efficient entrepreneurship examples of Unicorns and successful StartUps.

Many of these companies have subsequently earned billion-dollar valuations, some even have billions of dollars in revenue, but none started with anything other than what would be considered a seed round. Most of these startups raised money from VCs, but only after they established the fact that their success would come with or without a wire transfer from an investor. Even now, many of them aren’t widely known — they are the invisible unicorns of the tech industry.

Figure something out, then ask for money.

You don’t need venture capital to get started in most industries if you can solve a real problem for customers and charge money for it. Here are ten different ways to think about this and solve the StartUp V. Vulture Capital dilemma.

The simple answer is Angel Capital, yet this boosted to the Moon with bootstrapping is the more complete answer on how to avoid Venture Capital from becoming the Vultures that killed your Startup. Automate your workflow. The easiest way to build a useful product is to automate some part of your daily workflow. This will ensure you’ve got proven demand for what you’re building and a pre-existing funding source for your project. Start with a capital-efficient product. Many entrepreneurs make frontal attacks on industry leaders, usually resulting in failure. This is especially true in the case of hardware. Instead of trying to compete with a company like Apple, some of these scrappy startups filled the gap left by RadioShack and built businesses worthy of respect and emulation. Startups don’t have to be particularly innovative in terms of business model.

Building a better mousetrap on top of a more modern technical platform, or with a UX layer, can be enough. None of the companies that follow reinvented the wheel, but all wound up creating real value. Many entrepreneurs waste their time “playing CEO,” crafting a strategy and drawing up a dream org chart for what their business might become. Don’t do that. Instead, figure out what you can do, today, to advance this idea using only the resources you have. In bootstrapping with Angel Capital a StartUp you must remember that Self-reliance rules above all other methods of existence. Solve an existing problem and leverage an existing business model and the world will beat a path to your door…
Because Vulture Capital won’t make you or your company smarter, more insightful, or a better manager and leader of people — but it will surely make it a slave to the whims of those very same Vultures that eat carrion of dead and buried startups for breakfast. So just keep in mind that everyone’s money is green, but the Vulture Capitalist’s money is bloody red from the carcasses of many other Startups that were driven to an early grave due to the VCs liver-pecking the company’s founders.

Surely with Angels, the funding doesn’t always come into millions of dollars tranches at a time, but it doesn’t tie you up in a Promethean bondage on a mountain top rockery for the scavenger birds to peck at you and carry your flesh away. Scrappy founders can scrape away money from Angels, from grants, from incubators and after hitting the Angels again and again, they can even pile on with pre-sales, and actually sales to boot. The savviest entrepreneurs design their business model so they collect payment, before they deliver their product, turning customers into a source of growth capital. Early stage Angel Capital is always the best source of early stage funds geared to help the Startup and the Founders alike. Keep in mind also that the interests of the Founders and the Angels are always aligned against the Vulture Capitalist in the board machinations for control of the early stage StartUp company, because they both resist the urge of VCs to rule the roost as the Alpha males and to replace the CEO with outside professional MBA drones and to dilute dangerously the share of the equity the Founders and the Angels control. Of course the Vulture Capitalists insist on all these onerous terms, seemingly only in order to satisfy the need to create profits for their general partners & investors — thereby giving little or no thought to the Startup’s real needs, and certainly no thought to the needs of the CEO-Founder or the Angels.

And that IS WHY IT IS WISE TO RAISE YOUR OWN MONEY FROM ANGELS FIRST.

Second to that is the old fashion game of selling. Sell! Sell! Sell! Usually the best source of capital is a customer, and selling has two benefits. First, you make the cash register ring immediately. Second, you quickly learn what resonates with customers and can use those insights to refine your offering. Why do you need VC money early on? Thank about this: If you can’t creatively turn $1 into $10, why do you expect to be able to turn $1 million into $10 million? Efficiency > Capital. Fortune favors the “boring” because boring isn’t a value judgment. Many of the most impressive, successful companies that managed to grow without capital thrived by solving acute, if somewhat dry, problems. If you solve a hard problem, customers will happily fund it. Blessed are the unfundable, because sometimes raising capital is almost impossible and distracting as well as destructive for the StartUp team.

We’ve seen companies with tens of millions in revenue, triple-digit growth rates and other advantages struggle to raise even small amounts of money. Fortunately, these startups tend to prevail in the end, despite this apparent disadvantage. This kind of isolation prevents you from daydreaming about what you’d do with millions of dollars and forces you to make happy the paying customers you do have. Startups are often measured by how much money they’ve raised. It’s more important to ask how efficiently those companies use the capital. Efficiency doesn’t mean penny-pinching, but instead, finding entrepreneurs who orient their business around a technology or business model that is intrinsically more effective at multiplying capital.Be miserly with marketing. Startup marketers might not want to waste time with unmeasurable brand marketing. Efficient entrepreneurs need any efforts and any of their StartUp campaigns to be additive, immediately, and that is never the case with starting to make the rounds to raise Vulture Capital funds. More often than not — it becomes the death knell of the StartUp company, because it the VC process feeds on mountains of negativity piled atop of the Entrepreneurs’ head in order to obtain better terms, or simply to neg the offer. Soon enough this becomes a negativity spiral that only the strongest of the Entrepreneurs can resist and that is what kills most Startups that are cruising Sandhill Road and other lairs of the Vulture capital birds.

So before scrambling to start scheduling meetings with venture capital investors — try to read some of these StartUp stories, because they provide a counterbalance to the VC-centric outlook held by many founders, and provide alternative ways to think about funding.

What follows are brief and simplified descriptions of these companies (categorized by approaches they share) and links to stories where you can read more about them. Remember, taking venture capital should be a choice, not a compulsion.

These StartUp Founders here bellow can really show you, how it’s done.

They are doing it like a boss.

They are literally killing it…

You should learn form them.

So now that you learn, maybe you can try some of their business models for size too.

MailChimp: Co-founder/CEO Ben Chestnut was running a design consulting business in the year 2000 and had a stream of clients who wanted email newsletters created. The only problem was that he hated designing them. So, to spare his team the tedium, he decided to build a tool that would streamline the process. MailChimp, a $400 million run rate business, was born.

Lynda: Lynda Weinman started as a teacher in need of tools to instruct web designers in the late 1990s. The offerings at bookstores were bland, so she began producing training films that better educated her students. Tutorial by tutorial her company helped software developers and designers improve their skills. She spent two decades building a content library and tech assets that had enough scale to entice LinkedIn to pay $1.5 billion to acquire the company.

AdaFruit Industries: Limor Fried started her DIY electronics e-commerce empire as a student at MIT by assembling DIY kits comprised of off-the-shelf parts. Fried merchandised the same building blocks found at electronics stores, but also crafted quirky content that made the prospect of soldering a replica Space Invaders cabinet seem reasonable. Now she has 85 employees and earns $33 million per year.

SparkFun: Similar to AdaFruit, Nathan Seidle started SparkFun out of his dorm room by selling electronics kits and oddball components to a coterie of engineers who wanted to explore exotic new sensors and systems. Now his e-commerce empire employs 154 and has revenues of $32 million per year.

Braintree Payments: Exchanging money online, without being fleeced by fraudsters, is one of the oldest problems on the web. All parties to a transaction happily agree to pay a fair “tax” for a superior experience. Braintree built a better tech solution and survived on the proceeds of those transactions for four years before raising $69 million in two rounds of venture capital, which preceded an $800 million acquisition.

Shopify: Shopify’s founders were looking for a shopping cart solution when they were starting an e-commerce site for snowboarders. Unable to find one, they decided to scratch their own itch and built a bespoke solution on the then red-hot Ruby on Rails framework. It turned out to be a perfect solution for plenty more people, and the founders ran the business independently for six years on the revenue they generated. They ultimately raised money from VCs and later IPOed, which rewarded them with a billion-dollar valuation.

Ipsy: Sending boxes of makeup to amateur beauticians has become a growth industry thanks to pioneers like Birchbox. YouTube star Michelle Phan didn’t have first-mover advantage, but she leveraged her online celebrity (8 million+ YouTube subscribers), relationships with cosmetics brands and <$500,000 in seed funding to build a subscription box startup that generated $150 million in revenue before raising $100 million in VC.

ShutterStock: Jon Oringer was a professional software developer and an amateur photographer. He combined this set of skills and used 30,000 photos from his personal photo library to start a stock photo service that is currently worth $2 billion. His capital efficiency paid off and ultimately turned him into a truly self-made billionaire.

SimpliSafe: People scoff at the idea of trying to bootstrap a hardware business, but SimpliSafe’s Chad Laurans did it. He raised a small amount of money from friends and family and then spent eight years building a self-install security business, literally soldering the first prototypes himself to save money. Eight years later, the business has hundreds of thousands of customers, hundreds of millions in revenue and $57 million in VC from Sequoia.

Tough Mudder: Track & field entrepreneur Will Dean turned $7,000 in savings into a company with more than $100 million in annual revenue. The secret was pre-selling registrations to races and then using those funds as working capital to construct the electrified obstacle courses that have made Tough Mudder a global phenomena.

CoolMiniOrNot: CoolMiniOrNot started out as a website where geeks could show off their ability to paint Dungeons & Dragons figurines. Eventually, the site’s founders decided to design and distribute games of their own, leveraging Kickstarter as a channel. They have run 27 Kickstarter campaigns which have raised $35,943,270 million dollars of non-dilutive funding. Game on.

Scentsy: DNVBs are hip, but they are over-reliant on twee launch videos and Facebook ads to drive revenue. Scentsy sold candles at swap meets when they couldn’t afford to buy ads. It wasn’t glamorous, but it did give the founders a solid grounding on the messages that resonated with buyers — now they have more than $545 million a year in revenue.

CarGurus: This app leverages data analytics to help customers find the best deal on used cars, but the company’s CEO credits its $50 million a year in revenue, and profitability, to hiring a sales team early in the company’s life cycle. Nearly half the company’s 350 employees are busy making sales calls, not writing software.

LootCrate: LootCrate had more than 600,000 customers and $100 million in revenue before they raised institutional capital. Part of the reason they were so efficient was that the company started charging customers from its first weekend in existence. The founders were at a hackathon, set up a landing page, collected orders and used that capital to buy the geeky goods that would fill the packages.

Wayfair: The home goods e-commerce company was profitable from its first month of operation because they skipped brand advertising and bought up hundreds of domain names that were exact matches for common search terms. This model kicked off a decade of profitable growth until they ultimately raised a Series A — worth $165 million — shortly before going public and earning a market cap that is currently over $4 billion.

Cards Against Humanity: With just $15,700 in funding from Kickstarter, the Cards Against Humanity team built a business that grossed more than $12 million in its first year. They’ve also sustained their brand with a series of canny marketing stunts, selling cow poop, cutting up a Picasso, digging a big hole representing the ennui of a post-Trump America, then selling Trump “bug out” bags and simply asking for money. These promotions aren’t cheap to run, but they make enough money to defray costs while earning a disproportionate amount of free media.

GoFundMe: Viral marketing is dismissed, rightfully, when it is tacked on to a business model, but it can be a powerful driver when properly integrated into a business model. Paired with hyper-efficient conversion rate optimization (CRO), it can be unbeatable. The founders of GoFundMe were able to use these twin forces to bootstrap a business to the point where it was valued at ~$600 million.

PaintNite: The idea of combining Monet and Merlot has been around for a while, but the founders of PaintNite wanted to make the model more cost-effective. While their competitors relied on a slow, expensive franchise sales model, PaintNite paired art teachers with existing bars that wanted to sell wine on weekdays and created a business that did $30 million in revenue the year before it raised venture capital.

Plenty of Fish: The dating site was founded in 2003 and didn’t change dramatically regarding functionality or aesthetics over the next decade. Other sites had more features, flashier graphics and copious amounts of venture funding, but PoF was free and spent most of its resources fighting spam accounts. As with Craigslist, Plenty of Fish’s biggest asset was its reputation as a well-stocked pond. The company iterated on the product over time, but never needed massive infusions of capital. Ultimately, the company sold for $575 million.

Mojang: The masons behind Minecraft never raised any venture capital, employed just 50 people and earned nearly a billion dollars in profit before selling to Microsoft. The Swedish studio never got sucked into fads like Zynga-inspired social spamming and predatory microtransactions. Minecraft grew by charging users a flat fee, resulting in a $2.5 billion acquisition by the Evil Empire, Microsoft.

SurveyMonkey was founded in the dot-com bubble of the 90s and though it wasn’t as disruptive as peers like Kosmo, it was more durable. It survived the dot-com crash and steadily grew into a nine-figure run rate, only raising $100 million 11 years after getting started.

Protolabs does for plastic injection molding what Vistaprint does for business cards, and is currently worth $1.2 billion.

Cvent, worth $1.3 billion, builds event management tools and Textura, acquired for $663 million, handles construction management — neither typically considered a hot or hip market.

Grasshopper is a phone networking company that had 150,000 customers and more than $30 million in annual revenue, but no VC on the books, and was eventually acquired by Citrix.

Epic was founded by Judith Faulkner in 1979; the Wisconsin-based electronic medical records provider may be the largest bootstrapped software company operating today.

eClinicalWorks was founded in 1999 when the mantra was “get big fast,” and many of its contemporaries crashed and burned. By focusing on excelling at the dull, yet profitable work of managing clinical data, the company survived and now employs more than 4,000 workers and generates $320 million in annual revenue.
Unity became a backbone of the mobile gaming industry by focusing on all of the unsexy aspects of game development, like cross-platform compatibility and “bump mapping.” They went years without raising capital, but now have a valuation over $1.5 billion, and are more successful than the majority of branded game startups.

GitHub took the pain out of version control and became a critical part of the tech ecosystem before raising capital.

Qualtrics started as a tool to administer surveys for schools and businesses in a basement in Utah and now employs 1,000 and rakes in $100 million a year, profitably.

Atlassian: One of the benefits of building a startup outside Silicon Valley, NYC, LA or Boston is that there isn’t much VC available. This may sound like a curse; after all, how could it be helpful to have no access to capital? It can be a blessing in disguise. Atlassian, based in Australia, bootstrapped its way to a $4 billion market cap. If it had easier access to funding, they might have found themselves chasing low-quality growth and gone under before they figured out how to scale efficiently.

Campaign Monitor: One of the odd features of capital-efficient companies is that their first rounds of funding tend to be eye-popping sums that look more like proceeds from IPOs. This is the case for Campaign Monitor, whose first round of funding amounted to $250 million. Sydney-based Campaign Monitor didn’t have easy access to venture capital, so they bootstrapped the business and built a unique technology that offered superior email analytics to companies like Disney, Coca-Cola and Buzzfeed. Time will tell if raising a quarter billion dollars helps or hurts the company, but it is certainly a validation of the progress they’ve made so far.

The Trade Desk: While he had a unique view of how to power the programmatic advertising industry, founder Jeff Green started The Trade Desk late in the funding cycle for modern adtech. This overcapitalization of the market, combined with investors getting burned by bad performers, made every round of funding a struggle throughout the life of the company. Green was a consummate startup CEO, who raised only $26.4 million in venture capital during the company’s first six years and turned it into a billion-dollar business traded on the NASDAQ. How? By embracing the constraints of having less capital, focusing on the highest return activities and building a culture of innovation powered by ideas rather than infusions of capital.

AppLovin founder Adam Foroughi, sold his business for $1.4 billion, but found it hard to raise venture capital, even with serious revenue. “I couldn’t find anyone to give us an investment at what I thought was a reasonable starting point valuation (maybe $4 million or $5 million) and, by the end of our first year of operations, we were profitable and doing over $1 million a month in revenue.”

These are the top of breed from StartUps that went ahead with only minimal Angel Capital funding and plenty of Bootstrapping through the sweat, the toil and the blood of their Founders as sweat equity.

All the rest of their competitors in the exact industries that sought and received large cheques from the vulture capitalists — are now history.

Gone and buried in the anthill of crushed and long forgotten dreams.

Yours,
Dr Churchill

PS:

Startups are opaque. Indeed, they are far from well formed entities, and are always evolving.

Founders are rather inconclusive human beings for lack of a better word…

Vulture Capitalists aren’t perfect human beings either. They are certainly NOT masters of the universe as some of them lie t think of themselves as.

Indeed they suffer the bonfire of their vanities far more often than StarUp Founders do, and they pay the price for it, because far too many of their darlings go out in flames…

Yet as a community the Angel Investors are the best friends you have as a StartUpper and although the VCs miss out on the best early stage ideas and instead focus on what startups seem like sure things — the Angels never do, because inherently they lie RISK.

And that is why it is still shocking for me to hear today founders & other industry people speak about how often the Unicorn Startup founders couldn’t sell any VC investors besides the Angels who had come early onboard — to an idea that went on to become a billion-dollar business.

So keep repeating after me:
“It’s possible to get a tech-enabled business off the ground with no capital.
It’s feasible to scale a tech business rapidly with very little Angel capital.
It’s often in the founder’s best interest to even limit the amount of Angel capital they take.”