No venture capital: Why every entrepreneur should try bootstrapping their business
Bootstrapping is the act of financing business ventures with your own money, without venture capital (or any external capital at all). Impossible? Well, if GitHub and Craigslist can start a business with no outside investment – why can’t anyone?
It’s what I did with Ratehub.ca and for us bootstrapping was the best way to build a sustainable and robust business.
Not having much exposure to raising venture capital, and due to my prior experience with entrepreneurship, my co-founder and I decided to bootstrap the business. Sure, it created additional challenges along the way, but I don’t know if we would have reached where we are now without it. Here are three reasons you should consider bootstrapping your business.
No venture capital forces creativity
Creativity turns imaginative ideas into reality. It’s a process of thinking, then producing. Moreover, it’s necessary, according to an IBM case study that found creativity is the most crucial factor for success.
When I was in university, I launched small scale entrepreneurial ventures like helping students with exam prep and an entrepreneurial boot camp for kids.
They were low risk but taught me early on about the need for revenue to sustain yourself since you don’t have the cushion of venture capital. It kept me focused and grounded. Passion is important, but without income, it’s harder to keep going. These businesses were my first foray into bootstrapping and were essential to my entrepreneurial confidence which I continue to nurture to this day.
If I imagine worst-case scenarios – if everything were to go wrong and I couldn’t support myself financially, what would my reality become?
I could move back in with my parents. I could couch surf with friends until I get a job. All that to say… it wasn’t that bad.
With that mentality, I cared less about losing and could focus on growth. While my circumstances don’t match everyone’s, go through this exercise – you may find the worst-case scenario is not as bad as you fear.
We “hacked” our offices to save money
I needed to get creative to launch a business with no venture capital and sustain myself.
I didn’t pay for office space and instead hosted my co-workers every day in the townhouse I rented at in Toronto. Entrepreneurship is risky, and I took a risk my landlord would (thankfully) never find out. We had laptops, a one-of-a-kind idea, and a talented team – anything was possible.
Instead of buying a printer, we entered a contest to win one
We made big things happen in a small space, and we did it together. We went so far as to enter a contest to win a new printer, so we didn’t have to buy one. After that, the team created videos, found a cheerleading crew, and pulled off announcement stunts in the middle of downtown Toronto.
All this fun bound the team together with energy and commitment. We didn’t pay for a new printer; we earned it by winning the competition.
You stay resourceful when you don’t have venture capital
We did anything to save money and re-invest it back into the company to avoid needing venture capital. This experience forced us to focus on our customers, not investors.
The more traffic and potential customers to our website the more revenue we generated, and that’s how we created a profitable business.
We focused on one channel that required no money to start, just effort
Since we couldn’t spend money on advertising, we didn’t. Instead, we generated traffic for free by using search engine optimization (SEO). We researched our closest comparables in the UK and the US who were also using it. Social media was trending, but we didn’t know if it would drive the same revenue. We stayed focused on one marketing channel and grew our customer base and revenue that way.
I got an adviser to help accelerate my learning
I then sought the advice of an adviser to grow traffic, something I recommend to any bootstrapping entrepreneur.
He pushed me to tackle social media and email marketing. He was selling me on the merits of new forms of marketing to add to our mix. I put off his advice.
We needed to focus on one type of marketing and dominate it, not stretch ourselves thin or spend erroneously. From my earlier ventures, I knew we wouldn’t have time to make things complex.
I piggy-backed on media stories for organic PR
We built our brand by piggybacking on media stories. If there was a Bank of Canada rate hike, we would encourage journalists to use our mortgage payment calculator to break down what it meant for the average Canadian and how it would impact their finances. The journalists would link back to us, increasing our brand exposure.
We outsourced and were thoughtful about hiring employees
We outsourced projects with a definitive start and end. Our first outsourced project was to build the Ratehub.ca website which allowed us to get to market quickly without committing to full-time employees.
When it came time for a full-time employee, we made a list of everything we do every day. The first thing we did is looked at all the daily to-do’s and figured out which one took up the most amount of our time. We didn’t need to hire someone that did things we didn’t do – we needed to hire someone who could free up our time allowing us to focus on next steps. Our first hire came through a trusted referral network.
I did public speaking and attended conferences to sell the business
I was also busy figuring out how we could excel with the little we had. We needed money to grow. I went out into the community to speak with fellow entrepreneurs about what they were doing and how they were growing. I networked at conferences and trade shows. At one of the events, someone mentioned their success with government grants and loans.
We submitted applications and experienced early success. We still apply for grants and loans instead of venture capital, because we learned their value early – an important lesson from bootstrapping.
No outside funding keeps you focused on revenue growth, not venture capital
Bootstrapping our business ensured we focused on revenue and, of course, profitability. If we wanted to spend more and invest in our company we knew it meant we had to grow our revenue.
We looked for every possible revenue stream
After years of building a business aggregating mortgage rates in Canada, we began to run out of large scale brokerages that could service all of our leads. We then started thinking about building an in-house sales team and began to explore the idea of having our own mortgage brokerage.
If we launched our own brokerage, we’d run the risk of upsetting or losing the customers we’d worked so hard to get. We could lose all our revenue and collapse our business.
We were transparent with customers when we needed to grow beyond them
To combat that risk we called every broker customer and were honest and transparent with them.
We explained what we were doing, why we were doing it, and how we could still provide value to them. We had invested time in building a high-quality product and service and had become the authority in a niche market. Our data and knowledge gave us confidence and made up for our lack of capital.
Launching a mortgage brokerage in 2014 allowed us to double down on what we knew best and resulted in our best year ever.
Life after bootstrapping: Looking toward venture capital
When you bootstrap, you stay conservative for a long time. We had plans for growth and saw enormous potential comparing more financial products like car insurance, but everyone was already too busy to take on anything more. We had a playbook to follow from our success in mortgages, credit cards, and savings products, but we couldn’t afford to hire one more person to launch the insurance vertical.
After seven years of bootstrapping, we had reached our max capacity and needed to look at venture capital. We had planted the seeds, the soil was fertile, the sun was shining, but we needed some water to flourish. We needed outside investment.
That’s when I went on the popular TV show Dragon’s Den.
At the time, we were making $10 million in revenue, and our entrepreneurial confidence was at an all-time high. All our plans were detailed, we had a good story, and we were laser focused on revenue and profit. We felt all these things gave us leverage to go for more.
Securing the deal for venture capital
On Dragon’s Den, our original ask was a million dollars, but we ended up closing a deal for $12 million with Elephant Partners LP in Boston. Elephant also looped in Simon Nixon as an investor who was the founder of MoneySuperMarket (The Ratehub of the UK). MoneySupermarket has now grown into a business whose annual revenue in 2017 was $575 million.
They gave us funding because we had been doing it successfully, for a long time. We had a concrete foundation, and the framing was up for our next story. The additional money would help us button it all up.
That’s the power of bootstrapping and not running to take venture capital at the first opportunity.
We haven’t changed much since funding – discipline still governs our decisions. Because our framework was thorough and strategies were proven, we welcome the added pressure from the board of investors. They make us accountable to them and ourselves. The venture capital funding put into action our new insurance plans with a full team, each with defined roles, and within months, not years.
The journey never ends: Post venture capital business building
After nine years, we still feel like we’re just getting started. Bootstrapping laid the foundation to a sustainable business that can grow for years. Also, bringing on capital 7-years into our growth story allowed us to retain greater control over the company we built.
While bootstrapping may not allow you to grow as fast, you’ll create a solid foundation from which to grow and can be more aggressive later.
Bottom line: If you want to ask for venture capital money, bootstrap first. There are many lessons along the way.
If you’ve built a profitable business and you’re looking to scale up, venture capital may be right. However, it only makes sense if you truly believe venture capital is the one thing holding you back. Be prepared with a proven business model if you go down this road. Also, make sure you have an excellent story to tell investors. This will not only generate interest, it puts you in the best position to negotiate a deal.
One key benefit of waiting to raise capital is the ability to retain a majority of the company. When you’ve been successful at building your company, your investors want you to run the company because they’ve bought into your vision.
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Alyssa Furtado is a passionate entrepreneur, financial expert, digital marketer and educator. She is the co-founder of Ratehub Inc. and CEO of Ratehub.ca, the leading Canadian financial comparison site for mortgage rates, credit cards, deposit rates and insurance.