Bootstrapping to greatness: 3 successful startups that never took venture capital

Last Update: 19 Feb 2021

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We’re all familiar with tales of startup greatness that include early-stage startups pitching top Venture Capital (VC) firms on Silicon Valley’s Sandhill Road. From Peter Thiel’s half-million-dollar angle investment in Facebook to Impossible Foods’ late-stage, pre-IPO $300 million round of funding, venture capital has transformed countless startups from relative obscurity to household names.

Yes, venture funding has its obvious advantages—it enables growth, helps you gobble up market share, and connects you with seasoned professionals who can offer sage advice. But is it always the right choice?

ClickFunnels’ CEO Russell Brunson and Hotjar’s David Darmanin have built companies worth more than $100 million without taking venture capital. Others, like Qualtrics CEO Ryan Smith, waited until their companies were hugely profitable to start accepting venture capital.

The decision to pursue, accept, or reject investments from outside sources will depend largely on your business model. VC funding paid off for Facebook, Uber, and countless others who sought to completely dominate their market, and it at least partly explains why none of your friends have a Myspace account today—and why “Uber” is synonymous with “rideshare” the way “Kleenex” means “tissue.” That’s the very definition of market dominance.

On the other hand…

Opting out of VC funding gives you full autonomy over your business, and it grants you greater leverage should you decide to raise funds in the future. In other words, once you’re making a profit and it’s time to scale, you can look into smaller rounds of funding to fuel growth—while maintaining a majority share in the business you built.

This article will look at three successful tech companies that haven’t taken a dime in venture capital at the time of publication. You’ll learn a little bit about what they do, why their founders made the choices they made, and how those decisions fit into their business model. That way, you can make an informed decision when it comes to seeking, accepting, or rejecting large rounds of funding.

Hotjar: A model for product-led growth

Founded in 2014, Hotjar is a Marketing Technology (MarTech) company headquartered in Malta, although they have a fully distributed workforce that stretches around the globe. The Business-to-Business (B2B) platform offers a suite of marketing tools that includes heatmaps, session recordings, and surveys to help companies understand their visitors.

Hotjar’s story is an impressive one, having gone from their beta product to €1 million in Annual Recurring Revenue (ARR) in just six months—and then turning that figure into €15 million in ARR over the four years that followed.

One great thing about Hotjar, from a learning perspective, is that they’re incredibly transparent. CEO David Darmanin writes candidly on the company’s blog about their trials and tribulations, and in fact, his story is a tribute to the Silicon Valley maxim to “fail fast, fail forward.” Not that Hotjar itself has much failure in its history, but Darmanin openly admits to failing miserably (his words with his first two startups).

In his first two startups, he and his team began building what they considered the perfect product, only to discover that the market wanted something different. When he and his co-founders built Hotjar, they began with a Minimum Viable Product (MVP) and began gathering customer feedback immediately, creating a suite of products and features that delivered exactly what the market demanded.

Hotjar offers valuable lessons for founders who want to avoid (or hold off) taking VC funding because the company figured out how to become profitable quickly—something you have to do if you hope to bootstrap your way to greatness. What’s interesting, however, is that they almost took funding at one point.

Flirting with VC funding

It was 2015, and Hotjar was sitting at €1 million in ARR. Since they were growing, they had a payroll to make and expenses to cover. They spent eight months talking to some Swedish VCs, and before they received the term sheet, they came up with a specific range of funding they would be willing to accept (€3 – €5 million) in exchange for a specific range of equity (10-20%).

The offer was lower than what they were willing to accept, so they decided to forge ahead, continuing to reinvest their profits into the organization.

Was it the right move? As an outside observer, it’s easy to make that assumption considering their success, but Darmanin takes a more rational, agnostic approach.

“In the end,” he writes, “We succeeded in growing the business without investors. We were looking to raise between €3 and €5 million, and two and a half years later we have accumulated this amount through profits. We could have traded equity and full control to get these funds earlier on—and we’ll never know whether that was a good idea or not.”

ClickFunnels: The power of personal branding

Visit the official ClickFunnels Facebook group, and you’ll discover that the company and its founder, Russel Brunson, have legions of fans. ClickFunnels is a Software as a Service (SaaS) company whose product is essentially a webpage builder—one designed to easily create a series of landing pages (i.e., a funnel) that takes a prospect from a lead capture page, to the initial sale, to an upsell page, to a special offer, to a product delivery page.

What’s so special about a landing page builder? Sure, the product is well-designed, but there are plenty of well-designed web builders out there. ClickFunnels was founded in 2014, and the company’s five-year rise from bootstrapped startup to $100 million powerhouse has at least as much to do with its product as it does with Brunson’s marketing acumen and stage presence. He’s published hugely popular books about online marketing, posts regular videos engaging his audience, and runs an annual conference called Funnel Hacking Live, all to sell the dream of entrepreneurship.

Now, he acknowledges that the “funnel hacking” principles he teaches are just tried-and-true sales techniques, as old as the Pony Express. What he’s done differently, however, is to apply those principles to the digital space. In a nutshell, a core principle behind funnel hacking is to create a series of offers, packages, upsells, one-time-only offers, and more that aim for immediate profitability. In other words, he teaches his users to at least break even on their ad spend so that all repeat business becomes profitable. Once you’ve got a substantial email list, that email list becomes a gold mine, and you can harvest profits at little or no cost.

This is a very different approach than the typical SaaS sales model, in which VC-funded startups spend large sums on customer acquisition with the goal that Customer Lifetime Value will eventually exceed Customer Acquisition Costs. And it seems, at least in the beginning, that ClickFunnels used this approach to bootstrap its way to success. Today, the platform has over 100,000 subscribers.

The ClickFunnels model isn’t for every business, and that’s exactly why we’re covering it here. It contrasts the product-centric approach that fueled Hotjar’s rise, so it’s worth highlighting. Instead, Russell Brunson’s personality is at the center of the brand, and it’s hard to imagine what the company would look like if he decided to sell it.

Then again, would he ever want to walk away from such a good thing? If you watch his videos, it’s clear he loves his job. He’s committed to his business model, and his passion has led to over 100,000 subscribers. It’s also helped over 700 ClickFunnels users build million-dollar businesses.

Adafruit: Slow and steady wins the race

The year was 2017, and I decided to dabble (ever so slightly) in the world of electronics. Yes, I’m a writer who specializes in technology, but my specialty is software, not hardware. I could barely tell a circuit board from a circuit breaker, but I was on a mission to light up my Burning Man costume with something more sustainable than cheap, plastic “blinky” lights that fall apart after a night or two. That’s when I discovered Adafruit.

MIT graduate Limor Fried founded Adafruit in 2005 with a vision to create an online resource for electronics enthusiasts and makers at every skill level. Alongside helpful, step-by-step guides that show you how to do all sorts of electronics-related projects, Adafruit also manufactures and sells premium quality materials. Among those quality materials is the Electroluminescent wire (often called EL wire for short) that I used to light up this sport coat. And yes, I learned how to do it from an Adafruit’s EL Wire tutorial.

Adafruit grew slowly since its founding, but its growth from 2013 to 2015 took a major leap, growing over 700%—the culmination of providing years of valuable, free content and selling quality products. Today, its annual revenues hover around $45 million, and Limor Fried has been featured on the covers  of Wired Magazine, Make, and Entrepreneur Magazine—after winning the publication’s Entrepreneur of the Year award.

Adafruit is an example of a tech company that’s chosen to grow slowly and deliberately, and by doing so, Fried has maintained control of her brand. Without pressure from VCs to grow at breakneck speed and gobble up market share, she has created a multi-million dollar company that still has a fun, quirky, casual feel. And that branding has helped Adafruit find a special place in the hearts of hardware geeks, professional makers, and dabblers like me.

Note to designer: You can grab the covers of those magazines on Adafruit’s About page:

Just be sure to caption each image (always best practice to caption images) explaining what they are (e.g., “Wired Magazine”).

Should you seek funding?

In The Facebook Effect, journalist David Kirkpatrick tells the inside story of how Facebook came to become the world’s dominant social media platform. In a conversation with Mark Zuckerberg, Kirkpatrick tells him that he has the qualities of a natural CEO. Zuck recoils a bit at that characterization, but what the author meant was that Facebook’s young CEO was able to see the world in terms of flow charts and if-then propositions. He had plans, he had contingencies for those plans, and then he had contingencies for each of his contingencies—an internalized tree diagram. Kirkpatrick believes that mindset makes for a great CEO.

Your business, your market, the economy, and the regulatory environment are in a constant state of flux, and the best CEOs adapt to those changes as they come their way. As such, the question of whether to take VC funding is not only unique to your business—it can change at any given stage of development.

Yes, everything could shift tomorrow. Plenty of companies, like the aforementioned Qualtrics, rejected VC funding for years and then decided to strike when the time was right. As such, they were able to put themselves in a position of power by approaching VCs with a profitable company.

The best way to prepare yourself for those monumental, make-or-break decisions is to study successful companies and figure out how they’ve managed to carve out a niche in their marketplace. And while you can’t necessarily mirror their path, since every startup is unique, you can study their tactics and emulate their strategic thinking. In the end, learning how to think critically and act decisively will help you build a thriving technology business, funding or no funding.