Entrepreneurism: Creative Bootstrapping
Alena: Introduces herself and describes what Yale E.I. does. Student entrepreneurship.
Holly: 6th startup BlogFrog. Been on both sides of venture funding.
Ilana: Decided against funding bootstrapping 100%.
Elisa: When BlogHer started, we weren't quite a company yet. The founders met through lunch and a conference. Bootstrapped for 2 years before first level of funding. What are the forces of whether to take funding or not? Do you want it or need it? Let's talk about not taking funding.
Ilana: You have to make a decision. There is a need for a company like ours. Big market need. We've been approached for purchase. We've been looking at options. It was about control. Did we want to quickly grow, take on way too many employees. We thought we'd lose our voice if we took on funding.
Elisa: What about competitors who have more money because of outside funding.
Ilana: I've seen my friends go through the funding process, re quick sale so that founders could get money out of it. We didn't want to do that. We wanted to grow our company. I want to do the right thing even if it doesn't make more money.
Holly: sometimes it's all over the map. Sometimes opportunities come when you least expect it. Build the company first, then revenue will come. My first startup was a service company. We had a small round of funding, long term growth plan. One of our customers acquired us. At the height of the dot com boom, they purchased us for $280m. Yikes!
Elisa: Short sweet story.
Holly: BlogFrog had an offer when we least expected it. Holy cow. There must be something here. Lots of potential here.
Elisa: This reminds me of Carly's story yesterday. Her company saw huge potential, and the investor is seeing something you may not see. How do you prepare a student for this?
Holly: I think one of the things about entrepreneurship in general, you need a lot more self knowledge: What kind of person are you? What kind of biz am I starting? Where is the money coming from? Got to make strategic decisions. You'll need to find mentors. You have to know what the company or experience you want. Do you want control? Knowledge of growing it. Lots of decision making, so you have to know what you want out of it.
Elisa: When Ilana and I were talking, we talked about barter, how we bootstrapped our company originally. I went through my life savings and got into debt.
Ilana: As women we sacrifice and don't reward ourselves first. My husband says we need to take care of ourselves. I agree with him. We did put a lot of our own money into the biz, but we had to take care of our family.
Holly: We didn't pay ourselves for the first year. I have a male partner. We did have an agreement, middle ground, between not getting a paycheck and debt, we agreed about how long we were willing to go without a paycheck. Doesn't mean you go through all of our money. A threshold. We gave ourselves 6 months. We actually went 10 months. We didn't pay ourselves. We did generate enough money by the end of the year to get the first round of angel funding.
Elisa: What's the tradeoff. Control, Speed, Expectation. Also a choice between for or non-profit. There's a control issue with non-profit decision. Let's talk about tactics regarding bootstrapping. There are a whole bunch of ways to get money. Beyond angel funding or VC capital. Sometimes stat's have funding through government grants. There are other ways to support growth.
Alena: I talked with students about this. Students go out and apply for competitions and other hoops. They look for different ways to manage their management tools, every 3 months. They search for other income. Affinity groups. Grants for women in biz. Google very effective in searching for resources. Green industries. Government grants. High tech grants. Also local level. Grants are no just for non-profits.
Elisa: Echo in Green is a sample. They do social grants. Used to be all non profits. Now 1/3 of grants are for profit biz. There are programs out there now that I never knew existed.
Alena: Look at incubators. Biz bootcamps. At Yale we run a 10 week program incubator.
Elisa: You brought up equity. Holly, you told me that you don't want to pay equity.
Holly: In the early stages, maybe you can't pay your web person. And you might want to pay in equity. I don't believe in that. Entrepreneurs don't have an understanding of what equity really means. In the early stages, even 5% is huge. Perspective has to be realistic. Remember the guy who painted the wall at FaceBook? He's a multi-millionaire now. You don't know in the beginning what the equity will be worth. It's likely that you'll overpay if you think about trading services for equity. When employees get equity, there's a vesting schedule over time. They have to show skin in the game. Employees don't even get the full option of equity for 4 or more years. Be really careful about even thinking of paying your lawyer or designer in equity.
Elisa: Paying in equity sends a message that you don't have confidence in your biz. We didn't allocate equity until later, based on analysis. More realistic. Don't be free and easy with equity. If you have to pay people, how did you scale up adding people since there are only so many hours in the day.
Ilana: Sometimes we just hire when were in pain. We had one round of layoffs, and it was painful. We do give equity, but it's part of a package for full time employees over time. We want our people to be part of us. There's a program in place.
Elisa: Do you build into the model free-lancing? Do you have a pool of resources?
Ilana: We do a fixed fee tip of biz. We have to be competitive. We have a good handle on what it takes. We have a pool of 300 freelancers. We want to keep them because they have a unique skill set. We can't have all those skills in house. The pain is that there's a lack of stability. We have a mixed model. We run between 20-60 people. We're moving toward an employee model. We're turning away work and we want to stabilize our work force. Don't want to grow too fast. Delicate balance.
Holly: How do you scale up? The pattern I see in my companies that are software based, one of the core talents is somebody focused on the product. Don't want to outsource that core talent. We were about to go a year with just my partner and myself. We had to wear a lot of hats. All of the roles were represented but not full time, between us. We started adding staff. As we grew the product, we'd focus on each thing at a time. We decided t that we needed more people to manage products. Slow growth. We now have about 25 people. Growing as we needed people.
Elisa: We used to meet once a week at Draegers in the afternoon. There's a beauty in having partners, others to share the load. We all pitched in. Then we need to carve up the pie in terms of ownership and leadership. In order to manage the company. Alena, you told me stories of bootstrapping. Great stories.
Alena: With students, they come up with clever ideas when all hope seems lost. Talked about a grilled cheese franchise. Student really believed in it. He took it to the next step. Slick deck. Couldn't find investors. He went to state fairs, made grilled cheese with panini press. Filmed it. Lot of testimonials. Took videos and put them on YouTube, and then showed the film to investors. That pushed investors to say yes. He now has 8 stores. He's about 30 now. Cheese Boy.
Q1: He had a video…was that an option at that time.
Alena: Sometimes if it's product based.
Elisa: Keva model, crowd funding of startups. Seems interesting to me. Sometimes bootstrapping means you have to say no.
Hilly: It doesn't have to be like a real biz. It downs have to look slick. You can do everything cheaply, like working out of the library. Accelerators…text star was started out of boulder. You get all this expertise and mentorship, bout you have a whole city rooting for you to win. They get 400 applications per year. They only take 10 apple. Our company didn't make it to the top ten. We were crushed. So disappointed. Dejected for a few days. Now wait a second. What if we pretend if we got in. We called folks on the board, and asked them to be mentors. Some became angel funders. We set our goals…we pitched our idea 50 times per week. we got more investment than if were selected. It worked for us. Not taking no for an answer story.
Ilana: We had to decide whether to spend money on things that didn't give us ROI. Not just doing traditional things by rote. What are we getting out of it. Our people do multiple tasks.
Elisa: We hired a gal who handled multiple designer roles. She's grown to our chief designer. Good for us, and good for them. Open mindedness. Non traditional roles.
Ilana: As a small company, everyone has to wear a hat. Leverage strengths and weakness. Taking advantage of talents.
Holly: All of our furniture from salvation army. Our desks are from Costco. As well as folding chairs. Our cash-flow meant we didn't have cash for a moving company, so everything needed to break down fast. We purchased refurbished computers. Stuff is available that's cheap. You don't have to look sleek. Also management tools that are helpful and cheap. We've lived through the dot com boom. We've seen how executives make poor decisions with resources. Need to be conservative with where you put your money. Painful to live through.
Alena: Have to keep eyes open. Use your network. Know what you need, but keep open to opportunities. You can find great resources. Be clever with frugality. Bootstrapping is all about this.
Holly: At a previous startups, we actually repurchased an entire branding campaign from another firm. Bought it for $1500. They spend $150k originally for it.
Q2: Can you speak about when you need a little seed or angel funding? Maybe $200-300k.
Holly: Angel funding can be friends and family. Angel funding is around $300k now.
Holly: An angel round is negotiated. Value company first. Then term sheet next. With angel rounds, it's usually 1x. Investors may want a board seat. All negotiable.
Elisa: How do you know how to value your company. You have to have full understanding before looking for funding. You need to tap into other people, and look at how similar companies are valued.
Ilana: We had a track record. We had a line of credit. Very important. Especially if you have receivables or income.
Alena: There are strategies, to push valuation off until the company is mature enough.
Ilana: Because we are bootstrapped, we have a harder time with advice because they're not vested in the company.
[Editor's note: The transcript above reflects what the liveblogger heard, to the best of her ability, but is not a verbatim transcript of the session. As such, it may contain abbreviations or paraphrases.]