Business Startups Venture

Should You Take VC Money Or Bootstrap? Some Thoughts After Mailchimp’s Blockbuster Acquisition

By Jonathan Cogley

For many years, Silicon Valley has drawn two different profiles for startups: there are those that receive VC funding and those that stick to bootstrapping.

The latter category is usually depicted as the arduous workers due to these companies’ long growth path and the lower number they receive when they cap out. But after Intuit’s record breaking  $12 billion acquisition of the private bootstrapped email marketing company Mailchimp, that stereotype is changing.

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Founded in 2001, Atlanta-based Mailchimp had reached about $800 million in revenue before acquisition and had never sourced any outside funding along the way. The key that sealed this deal was the extensive data and customer reach Mailchimp had collected among small and medium-scale businesses (SMBs).

Throughout the past two decades, these insights have made Mailchimp a powerful accelerator for any company that wants to quickly scale in that market. On the other side, Intuit provides accounting services to SMBs using its software package, Quickbooks.

Jonathan Cogley of LogicBoost Labs

The company has accumulated a significant amount of data on purchase behavior over the past 10 years. The acquisition allows Intuit to integrate the purchase data with the marketing vehicles plus insights Mailchimp provides to secure a winning position in the market.

In other words, the deal happened thanks to good timing and years of groundwork preparation.

This case and the 110digit price tag might encourage more business founders to re-evaluate their choice of funding. For example, are they willing to build up their value and wait for the right timing or take the fast lane and get what they can from the beginning?

Despite the pages of pros and cons put together by consulting firms and experts, founders can still find themselves lost and not knowing which route to take.

I want to share some questions that founders should ask themselves to help them navigate the path that best suits their businesses.

Key questions

1. Do you want to do it all yourself?

For most founders, the biggest concern when it comes to taking outside funds is giving away control. But not every company can afford the price of freedom. If you feel comfortable listening to investors, then the dilemma is solved. If not, that’s when the second question comes into play.

2. Do you have the resources and skills to do it on your own?

Most VCs offer primarily cash on the balance sheet, but oftentimes they also bring in intangible assets. That usually includes introductions to resourceful networks and subject experts who provide hands-on help with implementing best practices in sales, marketing, customer success and technology development. Startups may have a limited budget to hire experts with long industry experience, so VC’s intangible assets can step in and fill those roles.

Founders need to do an overall evaluation of their needs and where they are in order to be able to decide which of the available assets to choose from. The bottom line is always to strike a balance in budgeting. All founders should have a go-to-market budget. Templates that cater to different company types can be easily found online. For SaaS companies, once the company has a minimum viable product (MVP) and a few pilot customers, they will need to set this budget plan.

To start with, founders can simply put in different numbers in the Start Banking Column in the sheet and add in items of expenses to calculate the profits, costs and cash flow. Then they can look at some key indicators to help them assess if the model they choose is sustainable. These indicators help founders visualize their expenditures versus expenses, which will help them plan hiring strategy accordingly.

Below are three examples of the indicators to look at:

First, break-even point. Founders need to make sure they have enough accessible funds to keep the business running before they break even. If the money can not cover the time their growth requires, the founder will need to consider outside funding.

Second, the cost of closing a lead (CAC) into a new customer. Founders need to be aware of the return of investment (revenue) per sales hire to adjust the expenditure on employment.

Third, the cost of servicing an existing customer. Founders should know how many customers a manager can handle so they can adjust the pace of acquiring customers or new hires.

3. Is the market opportunity compatible with a slower growth model?

One thing we all agree on is entrepreneurs face a highly dynamic and volatile market. Every industry reacts differently to macroeconomic impacts. The pace of product and technology iterations also differ in different verticals. Founders need to assess what growth model fits best to the company and the market it is in. For example, the Fast Moving Consumer Goods (FMCG) industry is sensitive to seasonal factors and has a higher demand for cash flow. In comparison, the SaaS industry could have less volatility but has a critical requirement for long-term strategies with product developments.

Besides the initial assessment of the industry, founders can find themselves with different priorities during every stage of the business. Those who decided to build the venture on their own might find themselves in need of outside funding at certain pivots.

From my own experiences and conversations with multiple founders, bootstrapped companies have more time to consider their options as they grow the business. On the other hand, funded companies typically struggle to find time between fundraising and selling to customers because they usually have a tight schedule to catch up with investors’ expectations on returns.

Conclusion

These questions and key indicators help founders determine the necessary velocity of the business and which business strategy is most likely to be successful. Simply speaking, it helps founders calculate if they will run out of money and how much time they have before they do. From here founders can assess how much outside funding they will need to avoid this failure.

Even though bootstrapping companies are famous for their long growth paths and the VC-funded ones are usually fast-tracked, there is no definitive timeline for either of them. Fundraising can be very slow and unpredictable and you may have to pitch 100 investors before getting any interest. Going down the entrepreneurial path is like sailing: you need to understand the prevailing winds and market conditions as you prepare for your voyage.

Let’s hope for clear skies, fair winds and good luck on your journey.


Jonathan Cogley is founder and CEO of LogicBoost Labs, which was created  to accelerate growth for SaaS B2B startups where cohorts are given the opportunity to grow and prosper through mentorship and strategic know-how.

Illustration: Li-Anne Dias

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