Bootstrapping to an A round isn’t all roses
There is a common adage amongst startup veterans that goes something like “bootstrap as long as possible before taking venture capital.” The thinking behind this approach is that the early days of developing a company are where you can build a ton of value, so that when you absolutely need the cash, it will not be nearly as dilutive as if you had raised money earlier. I think there’s a secondary current behind these words that suggests that early stage execution in the absence of investor meddling is somehow a recipe for greater efficiency.
The first reason makes sense. The second I don’t personally buy, but some founders have a chip on their shoulder I guess…and to each their own. Often bootstrapping is not an option…and for many early companies, a seed round or angel round is the only way to make an idea into anything more than an idea…
Early in our development of Coopkanics we made the decision that we would like to bootstrap until we had made enough progress to skip a seed round and go right to raising a Series A. We worked without pay or any resources for about 6 months, and then closed a $3 Million Series A round about two weeks ago. That financing, was, in fact more money at a higher price than we would have been able to get had we raised shortly after coming together back in January…the plan worked…BUT, it was not without sacrifice.
Fortunately, our core team was capable of engineering anything that we wanted to build, which allowed us to develop unique technology without hiring any employees, but our rate of development was what I’d call “slow and steady.” This is not a rate that we were used to. Eric will kill me for saying that, as he put up a herculean effort to get to where we are in the timeframe that we did, but objectively, having built deep technology with a team of 10 at Hyperpublic, as contrasted with a team of 3 at Coopkanics, as you might imagine, things moved slower…it was fine, we weren’t burning any cash, and our market is so far out that there is no saying that entering it a few months later as opposed to earlier is good or bad, but still…it took us longer to answer questions and assumptions than it would have had we raised a seed round in January. I expected that slower pace going in…well worth the tradeoff along this axis.
What I didn’t account for that we are just brushing off as a company, was the impact that sustained bootstrapping has on the mindset and culture of a startup…there is something to being tough and hunkering down…the Spartan culture created an insanely effective war machine after all…but being a Spartan probably wasn’t super enjoyable day to day…The week we closed our round, we went out for a team lunch and for the first time when that check came, it was “on the company.” I know that sounds trivial, but the lightness of that gesture in contrast to the Spartan battle we’d been fighting, really highlighted some of the more intangible implications of bootstrapping to an A round. The heaviness of being cash constrained, of skimping on office supplies, of going head down and suffering for the reward of a better round in some ways translated into this culture of mental toughness…it was almost as though in this period, we wouldn’t allow ourselves to smile…this period was not a time for comfort and joy, but rather a time to sweat it out…and although not explicitly, and although completely rational, this mindset wears on folks after a while…how can we have fun in this Spartan stage? The only thing that was going to get us out of it was hard work and discipline…and so we adopted a culture that lacked the lightness you might find in a more normal startup environment. Luckily for us, we were able to rest on our extremely tight bond and past experience managing the “hard days” at Hyperpublic…but we are still undoing some of that Spartan influence weeks after capital breathed new oxygen into the company. There is this feeling of “oh yea, I can go enjoy my softball game without impacting our army’s integrity…oh yea, I can joke around and laugh while we’re doing this…I can invest in culture without every minute going toward production…I can smile.”
The other day after reading Andy Dunn’s essay on the “hard days” at Bonobos I thought to myself: “So much of being a successful founder has to do with a person’s ability to execute when the smiles are few and far between…there is something to how effective you can be in your debilitated form…” I won’t say that bootstrap mode was debilitating, but smiles started to spread out…
So anyway, I am proud that we had the toughness and discipline to execute on this Spartan strategy, but if I could do it again, I would go in knowing that the corners you cut are felt, no matter how tough or capable you think you are. It’s not about dollars and cents, but about the mindset of conscious deprivation and what that does to the collective mindset of a small founding team…
Pretty happy to be out of bootstrap mode. Feels good to let a smile slip here and there.
Leonidas might not approve, but I was always more of an Achilles anyway J
Jordan Cooper's Blog: startups, venture capital, etc... 
Interesting points. Not sure I agree about engineering pace, even with cash and a 6 month timeframe you’d still have to recruit, vet, and hire the talent that would have helped, not hurt. Personally, I’d much rather slug it out with 2 guys I’m comfortable working with than try to hire and then manage 2 devs I don’t know while also helping code.
The cultural effects of “running poor” are spot on though.
Ashish Datta
July 16, 2013
Congrats on the A round and thanks for sharing your experiences / thoughts on this.
still that was only 6 months … not sure that qualifies for “Spartan”, especially since I assume you were confident a few months in that you’ll be able to raise that A round soon 🙂
Emmanuel Bellity (@ebellity)
July 24, 2013