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founder grew his first company to $10 million in revenue before selling it to a private equity firm for a 鈥渟mall eight-figure exit.鈥� Venture capitalists wouldn鈥檛 have been happy with an exit like that, Gazdecki said, but he was satisfied.

鈥淭he benefits of bootstrapping is like being at the blackjack table where you have a lot of chips and you can cash in whenever you want,鈥� Gazdecki said. 鈥淵ou don鈥檛 need board approval. You can sell for $30 million. That鈥檚 a fire sale for a venture firm.鈥�

Gazdecki is one founder who raised venture funding after bootstrapping鈥攔unning a company without outside funding鈥攆or a year. Crunchbase data shows that more than 1,000 startups founded before 2015 raised a pre-seed or seed round in 2021, meaning they operated without venture capital or with minimal funding for several years before raising money from VCs or angel investors.

Despite bootstrapped companies not fitting into the traditional Silicon Valley mold, some VCs are looking to invest in these companies, according to Kurt Beyer, a lecturer in entrepreneurship and innovation at .

That’s for a few reasons.

鈥淥ne, they may have gotten through the 鈥榲alley of death鈥� already, they may have achieved product-market fit, may have some revenue, so in a way they have de-risked the startup,鈥� Beyer said. 鈥淚f I make an investment as a VC during the valley of death, pre-revenue, there鈥檚 a tremendous amount of risk.鈥�

Before venture capital became the industry it is today, all startups were bootstrapped, Beyer said. One of the benefits of the VC industry forming around the 1960s was 鈥渨e could be much more aggressive and create startups around much more expensive types of products and services,鈥� he said. 鈥淭he perfect example of that is capital-intensive companies, like .鈥�

Companies in areas such as biotech and medical devices are almost forced to take the VC route because it takes so long to generate revenue. The so-called valley of death鈥攖he period without revenue鈥攆or such companies is so deep and so long that VC is basically the only way for those types of companies to survive.

But there are many other types of startups that can grow organically, and technology services like 鈥檚 make it easier to bootstrap, Beyer said. A startup wanting to build an app, for example, doesn鈥檛 have to raise VC money to build its own servers.听聽

鈥淭hat means in certain consumer-facing (companies), apps, or pieces of software, the valley of death is very shallow now, prior to revenue,鈥� Beyer said. 鈥淪o it is possible to get through, maybe through friends and family, and then organically grow it, especially if you can get to revenue relatively quickly and the margins are high.鈥澛�

Skin in the game

Bootstrapping also shows that the company has some staying power, Beyer said.听

鈥淭his is a team that was able to execute and get through the valley of death on a minimum budget, they were very efficient, they made good decisions around cost, that鈥檚 all interesting also,鈥� Beyer said. 鈥淭hat鈥檚 a very good signal for a VC firm. But again, that can only happen with certain products and services. There鈥檚 no way that certain classifications of products and services even have the option to bootstrap.鈥�

is an example of a VC firm that鈥檚 been keen on investing in bootstrapped companies. Over the last 13 years, the firm has invested in around 35 bootstrapped or lightly capitalized businesses, according to the firm. Among its notable investments are Utah-based , which raised a Series A co-led by Accel in 2012, and Australia-based , which the firm invested in as early as 2010, per Crunchbase.

奥颈迟丑听record amounts of venture capital being invested globally, investors are also finding themselves聽competing fiercely with other VCs to deploy capital and back the most promising startups. That could prompt more venture firms to pursue companies that may not fit the typical startup mold.

Accel always had a global mentality and thought of Silicon Valley not as a place, but a state of mind, General Partner said. Around 12 to 15 years ago鈥攍ong before the pandemic made remote work more mainstream鈥攖he firm鈥檚 leadership started to believe that great tech companies wouldn鈥檛 all necessarily hail from wealthy coastal areas like Boston or the Bay Area.听

鈥淏ack 10, 15 years ago, many first believed you had to have the company in Silicon Valley,鈥� Wong said. 鈥淭here was a lot of chatter that if you found founders in Romania, Finland you would require them to come to the Bay Area to get funding,鈥� he said.

Accel, however, established global offices in places like London, Israel and India, and that exposed them to world-class entrepreneurs, said partner .听

There are a few common qualities that make bootstrapped companies a good investment, according to Mathew.听

First, when a company is based outside of a place like the Bay Area, which has a large and established tech ecosystem, it has to work a bit harder to get technical talent.听

At the same time, capital constraints when a company鈥檚 trying to find product-market fit without outside funding to tide it over can be a good thing, Mathew said. Without venture dollars for a boost, bootstrapped companies are hyper-focused on creating a healthy business, building a product that people love, and generating a profit, which creates a sense of discipline.听

鈥淲e really like the formation story of these companies where they don鈥檛 raise much capital, they end up finding product-market fit, they end up infusing their DNA with a sense of discipline that sort of carries throughout,鈥� he said.

But taking venture dollars isn鈥檛 without its challenges. Bootstrapped companies aren鈥檛 often used to a Silicon Valley style of running a business, Wong said. For example, many bootstrapped companies haven鈥檛 done GAAP financial accounting or dealt with options or equity. Because of that, VCs who invest in bootstrapped companies can鈥檛 be passive investors.

To bootstrap or not?

While raising venture capital is one way to build a business, it鈥檚 not the only way. There are some key benefits that come with bootstrapping, according to Gazdecki.听

鈥淚f you want to get rich, you should bootstrap, and if you want to disrupt a market, you should raise venture capital,鈥� he said.

When a founder bootstraps their company, they own the whole entity. They can then sell the company whenever they want without board approval or people to answer to.

Companies that decide to take on venture funding after bootstrapping for some time often do so because either the founder鈥檚 personal ambition changes or the market size changes, Gazdecki said.听

In the case of MicroAcquire, Gazdecki鈥檚 current business, he bootstrapped the company for a year before his personal goals with the business changed. MicroAcquire provides a marketplace for startups鈥攎any of which are bootstrapped鈥攖o get acquired, and he saw the market opportunity for the company grow with increased M&A activity last year.听

MicroAcquire has now raised more than $11 million in venture funding from investors including and .

鈥淚 got to the point where I said, 鈥榣et鈥檚 put some gasoline on this,鈥欌�� Gazdecki said. 鈥淢y personal ambition changed: Instead of this being a two-, three-person business where I have to slug it out for years, I wanted to accelerate that business.鈥�

鈥淚 think a lot of these companies that bootstrap for a while, they get to a point where they鈥檙e already financially secure,鈥� Gazdecki said. 鈥淭hey built a business where they own the majority of it, they can have a liquidation event 鈥� so I think founders get to the point where they look at the market and go, 鈥榃ow this market is way bigger than when I first started and my ambitions have changed.鈥欌��

Some founders are resistant to the idea of taking on venture capital and diluting their ownership and control in their companies. Wong noted that it took somewhere around 2.5 to 3 years to convince Atlassian to take funding from Accel.

鈥淧art of it is a matter of trust. 鈥榃ill the new money people, the finance people, come in and change our culture? Will they encourage us to do things that we might regret?鈥欌�� Wong said.

Accel encourages founders of bootstrapped companies the firm is pursuing to talk to other bootstrapped founders who have received investment from his firm, Wong said.听

Sometimes bootstrapped founders who have taken VC dollars from Accel refer another bootstrapped founder. Ohio-based homebuying company , for example, was connected with Accel through the founder of , another Utah-based bootstrapped company that Accel invested in.

鈥淚t really rests on the foundation of, 鈥榙o they trust the other person on the side of the table and is there evidence that they’ve acted with integrity in many other situations?鈥欌�� Wong said.

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