Venture Capital is Overrated
Venture capital is a hell of a drug and for most founders they can’t get enough of it. More often the question entrepreneurs ask is “how do I get a VC to back my startup?”
There’s a common belief among founders that venture capital is a precursor to success. While VC may be a common denominator of the most successful tech startups, it isn’t necessarily a prerequisite, especially at the early stages.
To help illustrate how you can start a successful business without a huge venture capital investments, here are several examples of companies that started with a few thousand dollars, or even just sweat equity, and went on to become very successful.
Solve a Problem Then Ask for Money
You don’t need venture capital to get started in most industries, if you can solve a real problem customers will pay for it.
MailChimp: Co-founder Ben Chestnut was managing 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 building them. So, he decided to build a tool that would streamline the process. Today MailChimp is worth over $4 billion.
Lynda: Lynda Weinman started as a web design teacher in the late 1990s. She needed more tools to assist her teaching, but the offerings at bookstores were bland, so she began producing training films that better educated her students. One tutorial at a time 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 her company.
Shopify: Shopify’s founders were looking for an ecommerce 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 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.
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.
Epic: founded by Judith Faulkner in 1979, a Wisconsin-based electronic medical records provider which may be the largest bootstrapped software company operating today.
GitHub took the pain out of version control and became a critical part of the tech ecosystem before raising capital. It was later acquired by Microsoft for $7.5 billion.
Atlassian: One of the benefits of building a startup outside Silicon Valley, NYC, LA or Boston is that there isn’t much venture capital available. 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. By doing just this Atlassian, based in Australia, bootstrapped its way to a $4 billion market cap.
Takeaway: Avoid designing your business around VC
Too many founders orient their businesses around venture capital instead of their customers.
While it may be a good idea to avoid capital in the early days, almost every company eventually need some outside capital. In summary:
- 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 capital.
Invisible unicorns: 35 big companies that started with little or no money