To get Bigcommerce to where it is today, we had to raise a lot of money$125M over 4 rounds. When youre aiming to win a market, you need to invest in growth at the short-term cost of profitability.
Essentially youre competing in a land grab opportunity. Who can get the most customers and keep them with acceptable unit economics and churn, knowing that the leader in any market typically takes 80% of the available customers.
Salesforce is a perfect example. Google is another one.
After you survive eventual consolidation in your market and (hopefully) win the land grab, you can then focus on growing revenue to catch up to costs, so you have line-of-sight to profitability and then, of course, are profitable.
This is the model most (if not all) fast-growing companies coming out of Silicon Valley operate on today, including both private and public companies such as Uber, Square, Twitter, Hubspot, ZenDesk, etc.
A lot of people have strong views on profitability and the underlying assumptions startups are using to grow. Some say it operates on the greater fool theoryIll invest in Uber at a $40B valuation today because someone else will invest at a $60B valuation in a year from now, thus locking in our on-paper gains.
I dont necessarily believe its right or wrong to grow while sustaining large losses and continually raising capitalif the macro conditions and investor appetites support it and theres a large enough market, it can make sense.
I do, however, believe that raising money early on can create expectations that you just dont need when youre finding your feet.
Thats the exact reason we bootstrapped Bigcommerce to about $7M in revenue before we raised one cent of VC money. We wanted (and needed) zero expectations from anyone. We also wanted to raise at favorable terms and nothing gets you more favorable terms than millions in revenue and profit (not to mention, minimal dilution).
We also werent sure we had a business that could be large and sustainable over time, nor one that wed want to spend the next 510 years running.
After 2 years of bootstrapping, we raised our $15M series A in 2011. We were confident we could accelerate sales and marketing as well as R&D to drive an outsized return for investors over the next few years.
And so far, so good.
The Hybrid Model
Bootstrapping or raising money arent mutually exclusiveI think too many founders forget that. There are immense benefits to bootstrapping before you raise money.
In my experience they are:
For those reasons and a few more, Ive decided to bootstrap Capital H Labs until we have our first product that nails product/market fit while producing predictable recurring revenue which we can increase via an investment in sales and marketing, ultimately to become a leader in a fast-growing space.
Could I go and raise a few million bucks in a seed/series A round today? As a second-time founder, yesIve said no to several investors already and have a strong network.
Is it tempting to raise money while the macro conditions around VC are still somewhat strong? Sure.
Would the expectations attached to that money annoy me? At this particular stage of the companys evolution and having been through it all before, Id say yes.
Theres nothing wrong with expectations, but the only expectations you should have to worry about early on are those of your customers. Once youre meeting and exceeding their expectations, then its time to bring investors into the mix to scale your startup into a rocket ship.
Until then, theres a strong case to be made for bootstrapping.
P.S. If you manage people at your company then you should try PeopleSpark.
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