Why This CEO Says “No” to Venture Capital
“Can we grab coffee on Tuesday or Thursday next week?” This is the sign-off on so many email pitches from associates at venture capital firms who are sourcing deals. Deals — yep, companies with real products and growing customer bases who are going places.
Aha! looks like one of those companies now. If I accepted, my calendar would be filled with coffee dates. I am humbled by the velocity of these requests, but I must decline. (Besides, I do not even really drink coffee.)
Saying “no” to proven VCs with significant money to put to work and the desire to help create another billion-dollar company — I mean, who does that?
We do. And we are not the only ones.
According to Fundable, 95 percent of startups use private loans or help from family and friends. Another .91 percent are funded by angel investors. Only a scant .05 percent of startups receive outside funding from investors.
But to read the headlines, you would think otherwise. This might be because news stories often focus on companies that receive ridiculous amounts of funding. And then, the next round of headlines creep up.
We have all seen startups that chase VC funding, shore up piles of investor money, and then quickly spiral out of control. The fact is that this type of “valuation-at-all-costs” model is not only unsustainable, it is bad business.
Valuation can mask real problems and add relentless pressure. Consider Theranos, the blood-testing company that raised $750 million at a $9 billion valuation. After its technology failed to deliver, Theranos was hit with license revocations, lawsuits, drastic layoffs, and a shutdown of its testing facilities. Or most recently, Juicero — the startup that raised $130 million with its pricey juicer is now refunding customers.
So how do you build a business without gobs of venture capital? Well, you focus on what really matters.
Instead of chasing investors, you concentrate on building a sizable and growing customer base. You work hard at solving a real problem for those customers. You focus on creating a company culture that can power consistent and sustainable growth.
This may sound like a slow-motion way to build a business, but if you can steer clear of the growth-at-all-costs approach, you can derive lasting benefits.
Here is what we gained from bootstrapping our own company:
You get to decide your goals and how fast you want to grow. And you only have to answer to yourself, your customers, and your team — not outside interests who mainly care how your success will deliver the biggest payoff for them in the shortest period of time.
Seeking outside investment for your business may give you more cash to work with, but it complicates and burdens your path to your defined success. Maintain your independence and you can stay true to your original vision.
It can be very easy to frivolously spend money that is not yours. However, when it is your own money, you are more likely to consider where every dollar is going. That requires discipline, but it will benefit your business in a lasting way.
We all know of companies that take responsibility only when pushed — such as by customer outrage or bad PR. But by bootstrapping your own business, you learn about accepting responsibility every day. There is just you and the good people you work with to celebrate (and blame).
When you do not need to manage the expectations from investors, you can concentrate on the fundamentals — building a business that will last generations.
Now, do not misunderstand. Every business needs startup capital to develop its products and companies — even if it is a family loan.
Some companies require massive infrastructure investments that demand significant funding, such as pharmaceutical companies or companies that are building out data centers. Those are the exceptions though.
It is also true that many phenomenal companies owe their success to venture capital and the partners who helped guide them.
But most startups do not need the added stress and risk that comes from VC funding. You are often better off starting small, making mistakes and adjustments, and building a resilient business that can last for years. Do it your way.
What advice would you give to company founders?