If you read the major business press (and especially the tech business press) and see the regular headlines about successful startups, it can be easy to imagine that all successful, fast-growing companies are raising large amounts of venture capital and that doing so is a prerequisite for success.
In fact, that’s not the case.
Many businesses do benefit from venture capital investments, but many companies also choose not to seek venture capital and are able to drive growth without it.
The founders either supply any necessary funds themselves, or they take out bank loans or they reach out to friends and family for loans.
They do this as opposed to raising venture capital, which is investments granted for equity positions in businesses by professional firms that are tied to specific outcomes and timelines for achieving those outcomes.
Raising venture capital can be the right decision for a business, but it’s certainly not a guarantee of future success.
Many successful entrepreneurs and prominent business thinkers are skeptical at the amount of publicity that is given to fundraising, seeing it as a victory in and of itself. Gary Vaynerchuk puts it this way:
“I’m concerned a little bit with the culture of celebrating the fundraise. My dad taught me that when you borrow money it’s the worst day of your life…. What I’m looking for are people who are not caught up in the excitement. Even though I’m a hype man myself, I like the practicality of it all. People who understand how to turn a profit. At the end of the day, this is still business so I’m looking for real practical knowledge of how to actually make money, not necessarily raise it.”
If a company has worked hard to raise venture funding and believes they have done so for the right reasons, they should be proud and excited.
And there can be business advantages to publicizing a successful funding round: letting customers know you have the funds to keep going and perhaps scaring off potential customers.
But it is not a guarantee of success and it is not required by all businesses for success.
So lets take a look at some businesses who went the bootstrapping route.
Craig Newmark started Craigslist in 1995 as an email distribution list for friends.
Today, Craigslist lists more than 80 million new classified ads each month, 2 million jobs each month and millions of apartment rentals each month. Craigslist generated nearly $700 million of revenue in 2016 and was highly profitable. It’s the most successful online classified ads site on earth.
And its success has led Forbes magazine to estimate that Craig Newmark is currently a billionaire.
MailChimp is the well-known email marketing service started in Atlanta by Ben Chestnut in 2001.
It has grown into a very large company, with estimated annual revenues nearing $1 billion and hundreds of employees. It is also profitable and has never raised outside capital.
There is a great profile of this bootstrapping success story in The New York Times, called, appropriately enough: MailChimp and the Un-Silicon Valley Way to Make It As A Start-Up.
Another technology company that became large, successful and profitable without raising venture capital is SurveyMonkey, the digital customer surveying service.
SurveyMonkey was founded in 1999, but it didn’t crash and burn like a lot of other tech companies during the dotcom boom and bust. It only took on outside investment 11 years later, when it already had over $100,000,000.00 in annual revenue.
4. Tough Mudder
Will Dean and Guy Livingstone started the Tough Mudder physical endurance challenges in 2009. They each invested $10,000 of personal savings, organizing the first competition in Pennsylvania.
They sold 4,500 tickets to that first event.
The company skyrocketed in growth, and today profitably generates over $100,000,000.00 in revenue as it expands beyond competitions to media and lifestyle offerings.