Keeping Up With The Venture Capitalists
TechCrunch loves teaching entrepreneurs that the only way to succeed is to raise a shit load of money.
However, if TechCrunch published the profits and revenues created by these startups with as much frequency and fervor, we might see the media frenzy around venture capital for what it really is: a false positive.
I’ve raised $30M in venture capital, and have built three businesses with $200M in revenue. Each business I built had a different funding path. I’ve experienced everything from 100% bootstrapped to venture funded.
The question I most often get asked is whether raising venture capital is the right path for a business. Yet, a crucial question too often neglected is whether venture capital is the right path for the founder.
It took me years to finally ask myself this question. It was a trial by fire lesson that I hope other founders can learn from.
Who Is Defining Success?
Every entrepreneur wants their business to be a success. But what is success? Well, if we’re listening to the media frenzy, it’s a venture backed business that is highly praised for… wait for it… raising money.
The media frenzy skews our perception of success. It can appear that raising a crazy round of funding is the end all. When in fact raising venture capital is just the beginning of a speeding train’s journey.
More often than not, founders walk into raising venture capital without exploring what that means for the founder, the business and their trajectory.
The Venture Capital PR Machine
We forget that there is a reason for the venture capital media frenzy. Venture capital firms are well-oiled PR machines. They have to be.
Hundreds of millions of dollars move between startups, venture capital firms and their limited partners. Big bets are made on the next unicorn-to-be businesses, with even bigger promises made to limited partners on their returns. It is critical for venture capital firms to get into the best deals. To do that, a tremendous amount of PR is necessary to market their firm to potential investors and founders.
Yet, there is little written about the billions of dollars in revenue generated by successful businesses that take a different funding path. We don’t see these stories, as they aren’t backed by venture capital PR machines.
So when founders read about the big celebrated rounds, they often assume that venture capital is the only path forward, which couldn’t be further from the truth.
Business #1 - Bootstrapping
I completely bootstrapped my first business. It was easy to do with a boutique consulting firm, but I didn’t consider any other funding options either. Initially the business started with just me, then I gradually added a tiny team.
I scaled myself to only focus on landing sales with large insurers, while the team led the initiatives for which we were hired. I owned 100% of my business; it did not have any venture risk.
Business #2 - Bootstrapping + $30M in Venture Capital
The second business started out bootstrapped, with just me and Microsoft Access. The tech startup simplified buying and using health insurance. After six months I brought on a co-founder and an engineer that lived in India. We joined the Techstars NYC accelerator program to grow the business into a well-known consumer brand.
I owned 13% of my business but was making a bet that it would have a massive outcome. For the business model to work, we needed to get to 1M customers before the insurers took us down.
It was exactly what VCs look for. It had venture risk in a highly regulated market with a proven way to acquire customers fast.
Keeping Up With The Venture Capitalists
Within two and a half years, we scaled it to $28M in annual recurring revenue. I raised $30M in venture capital over four years.
I didn’t realize what this meant in terms of the weight I would carry for the rest of my journey. Raising this amount of capital meant we had no other alternative but to grow the business as fast as we could. Growth and fundraising greedily took up all the oxygen in the room.
Although I was the CEO, some of the most critical decisions of the business were driven by overly enthusiastic investors.
A few months after raising a Series A round the board was planning the next round, a $50M Series B. We built the company with a small team that used a ton of automation & tech to scale.
My definition of growth meant growing revenue, not headcount. However, a lead investor pushed to have us grow from a team of 40 to a team of 160 within the next year to make the business more attractive in a $50M fundraise.
The more I pushed back, the more I questioned if my definition of growth was “naive”. It’s quite common as a CEO to feel like you have no idea what you’re doing. You fight this, or lean into it, depending on the day. The chuckles during that board meeting towards my definition of growth cemented that feeling into a fact.
Keep up, Christine, or you could be removed as CEO. And so I did.
It’s the one decision I made that I regret the most as it changed everything.
The business went straight into chaos gasping for air as it tried surviving the avalanche of new employees. No one made me do it, but I learned the hard way that if you are a rocketship company for these investors, you have more pressure than the other portfolio companies to produce an outsized return.
Venture Capital Was The Wrong Path For Me
Like many founders, I dove straight into the venture capital funding path assuming this was the only way to build a successful tech business. I had inadvertently taken on a trajectory that I likely would have passed on.
Had I paused to ask myself what success meant for me, I may have had a different journey. But at the time, my identity was tightly wound in the business. It was painful to think about the business not existing, as that meant I wasn’t living up to the glorification of what an entrepreneur should be.
I wasn’t ready for venture capital but I didn’t know it at the time. I was on the speeding train, and all I could do was hang on.
Business #3 - Bootstrapping + Angel $$ + Customer Funded
Using what I learned from both of my previous companies, I initially bootstrapped my business. After a few months I raised a small angel round from other CEOs and operators. The business is venture fundable, but this time I'm not taking money from VCs. Instead I'm focusing on being customer-funded and profitable.
Profitability With A Tiny Team
Our scrappiness got us to profitability within three months of launching. This gave us leverage on who we take money from as we scale. I own 84% of my business and 100% of the decisions.
The daily pressures I have on the growth of the business come from customers rather than venture capitalists. It’s not as heavy, yet much more urgent. There’s less money, but oddly more time to solve problems. We don’t have to grow hastily.
No Longer Keeping Up With The Venture Capitalists
I never imagined that you could grow a tech startup without the drama. Or that I’d want to. Entrepreneurs regularly talk about the best part of building a business is the exciting roller coaster ride. I’d beg to differ now that I’m on the other side. There’s a more human element to this company as I’m not growing it at all costs.
This hybrid funding path works for me as I now know what success looks like for me. I want a big business that serves me, not drains me. Although I’ve raised a lot of money from venture capitalists, it turns out that for me, I’m a better entrepreneur without VC money. I’m calmer and less anxious, so my decisions have less sensationalism to them as the business is able to survive and grow without me. I work on my business, rather than in it.
What To Ask Yourself
I spent time exploring hard questions about what success meant for me and what I wanted. These weren’t questions I could immediately answer, although I tried.
My impulse was to give what I thought was the “right” answer, but as I explored them deeper, I realized that the immediate answers I shouted out were not my real answers. My initial answers reflected what I thought I should want, or need as a founder.
Here are a few questions to ask yourself:
What do you want?
What will having that do for you?
How will you know when you have it?
What would you have to give up to get there?
What might you lose that you value if you could have what you want?
What does success mean to you?
How will you know when you have reached it?
How do you want to grow your business?
What does ownership mean to you?
How will this business help you grow?
As you’re thinking about how to fund your business, put a great deal of effort into asking yourself if this is the best path for the business, but more importantly for you as a founder.
There are many times where venture capital is the right path, and I love helping founders fundraise when it is the right path for them, but more often than not, there are other less taxing paths for the founder.
I encourage you to ask yourself the important questions that will drive how you build your business, and how it will build you.
Special thanks to Matt Tillotson, Charlie Beeker, Sara Campbell, Joel Christiansen, Tom White, Stefan White, Nico Choksi, and Chris Wong for help editing this piece.