Bootstrapping or VC? One Company’s Path

4/15/10

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that was out of necessity. They had made their pitch to venture investors and been turned away pretty quickly. Often with feedback of “let’s stay in touch for when the markets improve.” Not many Series A financings were completed in the Seattle area during that time period (until the last several months). And of those that were completed, as successful as some of them will be, many were at a valuation which reflected the fact that capital was not readily available. But now that the markets have improved, and more venture capital firms want to put their money to work, some young companies are just saying no.

Venture capital investments bring a company, among other things, working capital (obviously), expertise on the board, connections to business partners, access to the industry talent pool, and ideally a path to success. And just by linking up with a good venture capital firm, companies often have an inherent sense of accomplishment.

But some companies have realized that they can grow and succeed without that sudden infusion of capital and without all of the benefits of having venture investors. These entrepreneurs have put their own savings into their companies and they’ve learned to run their businesses in an incredibly lean manner. They’ve been able to find strategic expertise and top-notch employees and consultants through hard work, experience, networking, and by utilizing their business, financial, and legal advisors. Perhaps they’re not growing as quickly, and that has some business risk in and of itself, and they’re also not drawing a large paycheck, if any. But they might have the ability to manage their business better, take the time to make thoughtful decisions, work with an independent Board of Directors of advisors, and do so without significantly diluting their equity position in their own company.

These entrepreneurs have learned that success is not necessarily defined by how much money you’ve raised and from whom. It’s what you do with your business at the end of the day—the success of accomplishing your goals. And with or without venture investors, if your business succeeds by the measure of the CEO and Board of Directors, that is ultimately what matters.

And if there is a meaningful liquidity event at the end of the day, even better.

Gordon Empey is an attorney at Cooley Godward Kronish LLP in Seattle. He has worked with startup companies and venture capital firms since 1998 and served as Executive Vice President and General Counsel to Radiant Research from 2004-2007. Follow @

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  • David L

    In an obscure way, this is kind of a question of reinvestment risk–that is, reinvestment of the entrepreneur’s time after his/her exit from the current company. An entrepreneur who has lots of other great ideas might be more predisposed to take the VC money, grow quckly, and exit quickly so they can start their next company. For those lucky few, the opportunity cost of bootstrapping is a lot higher.

  • http://www.dailygrommet.com Jules Pieri

    Gordon, My company just closed a Series A composed of professional, individual investors. However, we had a financing offer from a very prominent corporate investor in our space, but it required a VC lead. Here’s the interesting part…I asked my VC friends what they would do and they uniformly advised me to take the angel money. Even VC’s, in private moments, admit that there is often a better, early choice for a company than VC money. I do like the “deeper pockets” of a VC investor, but I can pretty much get everything else I need for my company right now from carefully chosen angel investors and advisors. It’s more work for me to manage these investors, as a CEO, but I think it will work out well in the long run.

  • http://www.cooley.com Gordon

    Hi Jules,
    So glad to hear you go the funding you wanted! And it is really intresting you got that feedback from your VC associates. Interestingly enough, I’ve had a couple ping me yesterday and today highlighting that situations like yours are very common and they really make a point of not puttinig money in where not appropriate (and encourage CEOs to think about alternatives)….And I really do hope it works out in the long run. Good luck!

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