No.10: A new definition of bootstrapping
Curated news and insights about bootstrapped entrepreneurs building real businesses and the investors who want to finance them.
Good morning friends,
I need to redefine the meaning of being “bootstrapped”.
Since I started this newsletter a couple of months ago, I have been using the words “bootstrapped” and “self-funded” as the default words to describe a certain type of entrepreneurs or companies. The main idea behind Mereo is to promote entrepreneurs who proactively decided to build real businesses - entrepreneurs who are more focused on profitability and sustainable growth than a unicorn valuation. As it happens, most of such kind of entrepreneurs are bootstrapped entrepreneurs, meaning they built their company with little (“family and friends”) or no money. When referring to being bootstrapped, many think of a company with absolutely zero external funding at all. For me however, bootstrapping is something different than that.
Photo by Austin Chan on Unsplash
A new definition of bootstrapped entrepreneurs
Since the current meaning of “bootstrapped” is too restrictive in my view, I will offer my own version. Going forward, when writing about bootstrapped entrepreneurs, I will mean entrepreneurs and companies with the following characteristics:
Priority #1 is sales and customer success
Build a product that customers will pay for, today
Sell each product at a profit
Use as little capital as possible to find product-market fit (PMF)
Spend zero dollar on customer acquisition before the first signals of PMF
Grow slowly, but grow real (i.e. 20-25% p.a. over a long period is better than an unsustainable rocket ship)
Use venture capital or growth equity to fund risk-bearing growth initiatives (e.g. new products, new markets) and strengthen their balance sheet
Use alternative funding models to fund repeatable and scalable part of the business (e.g. digital advertising, working capital)
Keep control of the company by protecting their ownership (see the article “unsafe notes” below) while allocating some to value-add partners
Value the freedom that entrepreneurship brings them
Many items on that list are similar to the common understanding of being “bootstrapped”. The one big difference with my own definition is that external capital can be used to fund sustainable and profitable growth. Additionally, bootstrapped companies should not be against venture capital or growth equity as long as the capital is used to fund real growth.
What is your definition of being bootstrapped? Or do you have a better word to describe this type of founders and companies? Please let me know by email at mereo.community@gmail.com or on Twitter @michelgeolier.
PS: obviously this comment applies to asset-light internet and software companies and not to hardware, healthcare, biotech or any asset-heavy types of company.
In other news
General Atlantic buys startup Kiwi.com (article)
The Czech Republic-based travel company raised only $1.7m from angels and small VC firms and reached more than $1b in gross booking in 2018, according to Skift. The investment sum was not disclosed, but Skift’ source believes it could be close to $125m.
U.S. private-equity firm General Atlantic has agreed to invest an undisclosed sum in Kiwi.com, a travel tech startup whose flagship product is selling cheap airplane tickets. The investment buys out past equity investors and makes General Atlantic the majority owner of Kiwi.com, a startup that launched in 2012. “We intend to show the world we’re something bigger than an OTA [online travel agency] and to transform our product into something that goes beyond the standard OTA capabilities,” said CEO Oliver Dlouhý.
Unsafe notes (article)
There is nothing more annoying than an amazing company with a shitty cap table due to convertibles notes or SAFEs. Just ask Fred Wilson from USV how irritating this mess can be for the founders, existing and new investors.
The Series A focused VC firms that often lead the first priced rounds get to see this nightmare unfold all the time. The company has been around for a few years and has financed itself along the way with all sorts of various notes at various caps (or no cap) and finally the whole fucking mess is resolved and nobody owns anywhere near as much as they had thought. Sometimes we get blamed for leading such a dilutive round, but I don’t care so much about that, I care about the fact that we are allowing these young companies to finance themselves in a way that allows such a thing to happen.
Maveron Ventures keeps its fund size right (article)
When it comes to performance in VC, professional investors know that a bigger fund size is the enemy. So when a top tier venture firm decides to stay small on purpose (read by rejecting prospective LPs), it should not stay unnoticed.
“It takes discipline to do something different from the rest of the herd, but we know that we’re not in the business of AUM, we’re in the business of generating cash-on-cash returns,” they [Maveron] wrote. “We know in this market it is hard to adhere to the idea that size is the enemy of performance but we believe in that truth here.”
Tiny VC funds are thriving in the SoftBank era
Micro funds are here to stay thanks to experienced managers.
Last year, venture capitalists raised a record $7.4 billion for sub-$100 million vehicles, closing an all-time-high 268 funds, according to Preqin data. And three months into 2019, VC managers had already closed 64 micro funds — closing more funds in one quarter than they did in the entire year of 2009.
About Mereo
Mereo is a newsletter-driven publication about entrepreneurs building real businesses and the investors who want to finance them. Mereo is written by Michel Geolier, a venture investor based in Munich, Germany.
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