Bootstrapping or VC? One Company’s Path


I was recently headed down the fund-raising road with one of my technology startup clients, when something strange happened.

This client is a company founded by entrepreneurs with accomplished backgrounds. They came up with a novel idea and had developed it over the previous 24 months. Their product had been commercially released, and they were beginning the process of building their market. They secured a strategic business partner based on the powerful nature of their technology and revenue started to come in the door. Impressive for a small business that had bootstrapped itself through a recession. The CEO then came to the conclusion that they needed to be strategic about their business, hire key personnel, and spend their way into market share. The only way to do that quickly was to raise venture capital. I did some introductions for them, and they had some contacts of their own. In pretty short order, they lined up meetings with three venture investors within a week of each other.

The CEO called me after each meeting and the response was similar for each one: “It went great—they want in. We’re going to get a term sheet.” He felt good, but I know him and could tell that something was eating at him. The day after the last meeting, the CEO called me back and said, “We’re not going to do it.” I assumed that he meant they had been rejected by the prospective investors. But what he said next surprised me. Maybe it shouldn’t have, but it did.

“They really want in, but I don’t want to take the money. Their interest has made me realize that what we have is special and we need to keep growing this on our own. Maybe not as quickly as we could have otherwise, and maybe it will be painful, but hopefully not for too much longer. They will be there if I really need it, but maybe I can do this without giving away 33-50 percent (or more) of the company.” Then we went into a long discussion (and modeling) of how the economics could play out to his advantage in the near and long term if they didn’t take venture money and ultimately sold the company, factoring in the likelihood of a reduced price because he wouldn’t grow as quickly.

I was fascinated. I had worked feverishly on venture capital financings over the past 12 years. And absent the time periods when the startup markets were dead, raising money from venture capital investors is just what technology companies did. When quality investors wanted to back you, you said thank you, put them on the board, and deposited their money in the bank. Apparently not in this case.

I had seen most startup companies that were able to survive over the past 18 months, including many clients, do so by bootstrapping themselves, thinking creatively about growth, utilizing the readily available talent on the market as consultants, and slashing expenses. But for the most part, … Next Page »

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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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4 responses to “Bootstrapping or VC? One Company’s Path”

  1. David L says:

    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.

  2. 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.

  3. Gordon EmpeyGordon says:

    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!