John Nordmark is no stranger to raising venture capital (VC) funding. A startup called eBags, which was launched during the dot-com bubble, raised $35 million (approximately 5 billion yen, equivalent to 145 yen) from VC, and in 2017, it was sold to Samsonite for 100 million yen. It was acquired for $5 million (approximately 15.2 billion yen).
But for his current startup, which runs the business AI platform Iterate, Nordmark is adamant about relying on outside funding. In an interview with Insider, Nordmark said:
“When you receive VC backing, the investors act as directors and influence the company’s strategy, but sometimes it feels like it’s more than just that. Investors tell the founders to do this and don’t do that. In my experience, this kind of thing weakens the company.”
Nordmark is one of an increasing number of founders choosing to bootstrap (growing a startup without relying on external funding from investors) these days.
While self-funding was once seen as a sign that a business was on the verge of bankruptcy or was too slow to attract VCs, the tech world now sees it as a way to escape the pressure of VCs hungry for exponential returns. , the movement toward self-funding is gaining momentum.
I want to hold the reins myself
One of the reasons why bootstrap is attracting attention is because investment from VCs is currently decreasing in almost all industries except AI (artificial intelligence). As a result, startups are struggling to survive, and in some cases, they are being forced to go out of business altogether. Although the amount of investment from VCs reached a historic level in 2021, it cooled down in 2022 and will remain at a low level in 2023. As a result, startups that are running out of runway have little choice.
According to six entrepreneurs interviewed by Insider, they sometimes proactively turn down investment offers in order to maintain maximum control over their business plans. Not having VCs on the board also had the advantage of making it easier for founders to pivot their companies quickly and achieve product market fit (PMF). They say this is also a big reason why they are moving away from term sheets.
Nordmark meets with multiple “major growth venture firms” a week, and works with the largest VC firms it has had ties to since the days of e-bags (such as Benchmark, which invested in several of the company’s funding rounds 20 years ago). ).
However, that doesn’t make him change his mind.
“That’s not particularly attractive, nor is it ultimately what we’re looking for. Once we receive funding, the bar gets much higher. The pressure isn’t artificially applied from outside, it’s self-imposed. I want”
No need to wait for VC to return from vacation
Bootstrapping is not a new phenomenon. In the past, many early-stage startups have scraped together funds to launch and run their companies before seeking seed or Series A funding.
Same goes for tech giants Meta, Apple, and Oracle, as well as MailChimp, which remained bootstrapped until it was acquired by Intuit. Are known.
Founders who have avoided VC funding say bootstrapping allows them to move forward and grow their business at their own pace.
Brooke LeBlanc, founder of bootstrapping sobriety startup Edge, says:
“The purpose of becoming a founder is to have influence and influence without seeking outside permission.If you wait for VCs to return from vacation or for the economy to pick up, it will be difficult to become a founder because of market conditions. I am unable to fulfill my responsibility of moving forward without being influenced.”
Dr. Bobby Wegner, who retired as a clinical psychologist to launch Groups, a startup focused on group workshops and psychology businesses, was considering taking funding in early 2023. But he put it on hold when Silicon Valley Bank collapsed, and ended up turning down a position at Techstars Boston, a prestigious accelerator program.
Looking back, not taking outside funding allowed Groups to pivot from a direct-to-consumer (D2C) model to an enterprise business model.
“By not bringing in outside capital, we were able to maintain authenticity and integrity, and connect with what’s right in front of us without being interfered with by outside voices, figuring out what’s right and what’s wrong. I was able to continue. I feel great.” (Wegner)
There is also a pattern opposite to this. Some founders who received early VC funding say they are looking to break away from relying on large companies for funding.
“The last time our company raised money was a Series D, and that was it,” said Crunchbase CEO Yeager McConnell.
“We have no intention of raising money again in the future. We have the sustainability we need to succeed as a business. We can continue to grow without VC funding,” McConnell said.
VC is not for everyone
Of course, some startup founders still receive large sums of money from VCs when the timing is right. SimpleClosure, which uses AI and legal tech to help distressed startups navigate appropriate bankruptcy procedures, just raised $1.5 million in pre-seed funding.
Founder Dori Jonah previously told Insider that she planned to bootstrap, but was approached by VCs to help her quickly scale up in preparation for the looming “mass extinction” of startups. This led us to raise funds.
But now that the frenzied fundraising frenzy of 2021 is behind us, the startup world is reminding us that not only is VC not for everyone, it’s actually not the right fit for the vast majority of companies. I’ve come to realize this, says Jason Burke, founder of AllStage. Allstage is a startup whose philosophy is to foster collaboration in the investment and financing of early-stage startups, and Burke himself bootstrapped Allstage.
“Every time you hear a headline about Company X raising millions of dollars, there are 99 other companies that didn’t,” Burke says.
Bootstrapping may also not be for everyone (Burk notes that the technique can be advantageous for established founders with deep pockets), but it is more viable than before. It is said that it has become.
“It’s cheaper to start a software company now than it was in 2003, because there are a lot of toolsets and cloud software that make things quick and easy,” says Burke. “Bootstrapping will become more widespread.”
[Original text]
(Edited by Ayuko Tokiwa)
Source: BusinessInsider
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