September 18, 2015
The startup world relishes tales of big, meaty VC funding rounds: details of which institutional investors are taking a punt on a hot on-demand service or fintech startup, stories about how this series C or that series E has created a brand new ‘startup unicorn’.
With such large amounts of cash at stake the buzz around VC funding rounds is understandable, and it goes without saying that this kind of growth capital can play an important role in helping startups achieve scale quickly. However, as venture capitalist Sarah Guo recently acknowledged on Medium, not every startup should be venture backed, and raising venture capital can actually hurt a startup if it forces an entrepreneur to take his or her eye off the ball. As Paul Graham points out: “One of the things that surprises founders most about fundraising is how distracting it is”. Raising funding can hurt the business if it distracts a founder from the product.
For many startups there is another way. Flip that VC coin on its head and you’ll notice that the startups that are achieving scale without taking venture capital often get much less media attention – either because their stories aren’t as juicy and glamorous, or because their own growth is less visible to the world at large. Whatever the reason, the truth is that a significant number of successful, high-growth companies are starting up (and scaling up) without taking a penny of VC funding.
Here are just some of the British startups that are bootstrapping their way to success.
Founded by British entrepreneurs Mat Clayton, Nikhil Shah, Nico Perez and Sam Cooke, Mixcloud launched in 2008 as a service for streaming DJ mixes, before expanding its focus to become a platform where users can upload, share and listen to any kind of long-form audio, including DJ mixes, radio shows, educational programs, talks and podcasts.
Although Mixcloud’s launch and subsequent growth have been bootstrapped by its founders, they do not have an aversion to VC funding; in fact they considered raising venture capital in 2008 and again in 2014. “Although bootstrapping a company comes with having more freedom in the way the business is run, [Mixcloud co-founder Matt] Clayton admitted that this path could have easily gone awry”. VC funding comes with potential downsides, but so too does bootstrapping your way to growth. Bootstrapping generally offers startups less runway, which brings its own catalog of risks.
Mixcloud has pulled it off, though, and now boasts 12 million monthly active users, with 650,000 DJs, radio presenters and podcasters using the platform to upload and share their long-form audio content.
Equal Experts, an agile software development company founded by Thomas Grainier in 2007, has gone on to become one of the UK’s fastest growing technology companies and now counts Telefonica, HMRC, UBS and Camelot as clients.
Equal Experts was recognized in the 2014 Deloitte UK Technology Fast 50 as Britain’s second fastest growing tech company, with a five-year Compound Annual Growth Rate of 4.429%. Even more impressively, it has achieved this growth without taking any external funding, while simultaneously being voted one of the top five workplaces in the UK for work-life balance.
Founded in 2013 by Jose Bort and Jose Moliner, London-based events startup Pickevent bridges the divide between real-world events and online networking. The Pickevent platform enables users to discover interesting events, follow event organizers and attendees, and connect with other users before, during and after the event. The company’s new white label solution also enables event organizers to create a branded events platform tailored to meet the needs of their brand and audience.
Bort and Moliner left their jobs to launch Pickevent, and have bootstrapped their startup without any VC funding so far.
Caxton FX was founded in 2002, before TransferWise was even a twinkle in its own founders’ eyes. The founder of Caxton FX, Rupert Lee-Browne, understood that banks were doing consumers a disservice when it came to international transfers, and created a fintech startup to right that wrong.
Initially based in a small office in Shepherd’s Bush, Caxton FX has grown to become a European leader in the fintech sector, and now manages more than £700 million for clients each year. The company has scaled up without taking any funding from venture capitalists, and Lee-Browne acknowledged that he is “particularly averse to both private equity and venture capital”. Caxton FX turned instead to its own customer base for growth capital, by issuing an innovative £4 million retail bond in 2011 and a £5 million bond in 2014.
In 2006 seasoned entrepreneurs Terry Jackson and David Salgado launched Admoda, a London-based mobile ad network, with a specific goal to bootstrap their startup from start to finish. As the company’s ‘About’ page states, “Bootstrapped all the way, we are extremely proud of what we’ve achieved.”
And Admoda has achieved a lot in the past nine years. The ad network now serves tens of billions of ads each month with a client base that includes Google, Budweiser, Hotels.com, EA Games and Illy Coffee.
London-based Abintegro is a career management and e-learning startup launched by David Heard and Tony Heard in 2008. The company has been bootstrapped from the beginning, profitable since 2010, and has grown to serve more than 1,500 corporate clients spread across 10 countries.
Founded by brothers Stefan Siegal and Daniel Siegel in 2008, London-based fashion startup Not Just a Label has grown to become one of the world’s leading platforms for showcasing and nurturing up-and-coming fashion designers. Although the founders have met with VCs in the past to discuss fundraising, the talks have never resulted in a VC round and the platform continues to be funded by channeling revenue back into the business.
Not Just a Label now showcases the work of over 16,000 fashion designers in 110 countries, and has grown steadily even as VC-backed competitors like FashionStake and Lookk get gobbled up by competitors or crash and burn.
Different strokes for different folks
“Don’t raise money unless you want it and it wants you.” – Paul Graham
The question of whether to raise a healthy chunk of growth capital or pull a business up by its bootstraps is a difficult one to answer. Both options come with their own upsides and downsides, their own successes and failures. Neither strategy is inherently superior, and sometimes early-stage companies have the decision made for them, but startups that are successfully bootstrapped deserve an equal share of the limelight alongside their VC-backed peers.
Disclosure: The author is a former employee of Caxton FX.
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