Home Despite What You Hear, You Don’t Need VC Funding

Despite What You Hear, You Don’t Need VC Funding

According to the most recent edition of PitchBook’s Venture Monitor, the first half of 2018 saw 94 investment deals surpassing the $100 million mark, continuing a trend in which late-stage successful startups and larger companies receive the lion’s share of VC funding allocations. That’s not to say that seed rounds for startups don’t get VC investment, but by and large, investors are looking for a few established business models with huge potential returns. In short, it can be tough for the little guy.

To be clear, that’s not why I elected to start a company without VC funding. “Elected” is a strong word here, because I actually can’t claim I made a deliberate choice about the matter. I already had a profitable company, but many of my customers were struggling with a specific problem that I knew we’d be able to solve.

We began by creating a product, then we pushed it to market. Before we knew it, we had diverged quite unintentionally from the VC path. Once you’ve poured a significant amount of your own money into a project, raising venture capital puts additional risk on your investment. I checked with my advisors and ran some scenarios. In the end, it made the most sense to continue down the bootstrapping route. While VC funding might seem like the ideal path to starting a successful business, especially one with a tech-based product that could be expensive to produce, my experience shows it’s not the only way.

Starting From Scratch

There are about as many “best ways to start a company” as there are company founders, from crowdfunding to VC funding to bootstrapping. In my case, my background as an engineer dictated that we first create something of value that could solve a problem. We put a lot of energy and focus into our product and continued to refine it after gaining traction with customers. Today, 95 percent of our 237 employees are trained engineers. Even the members of our sales team have engineering backgrounds.

I moved to the Bay Area to push our product to market during our first year, and I met with upwards of 60 companies. Although many were interested in using our technology, they weren’t always the right customers. In some ways, our lack of venture capital was a blessing because it forced us to focus on finding the right customers who needed the value we were creating and were willing to pay a premium for it.

We also built and nurtured relationships with a few big companies that were trying to push a video platform product. These partners gave us access to valuable leads and minimized the need for a large and expensive sales team; put another way, our partners were our warriors. We relied on them to do some of the heavy lifting we weren’t capable of at the time. The cold, hard truth at that moment was that we couldn’t afford a sales team of any size, so being able to grow using our partners’ resources was a critical part of our expansion.

The first two years of our existence, money was tight. We were deploying for customers, but the revenue needed to be reinvested in the product, and it was slow going. When bootstrapping a startup, prepare to make sacrifices for quite a while. It wasn’t until we were four or five years along that we finally made it out of the woods, so to speak.

All in all, it’s been an 11-year journey, and most of our rapid growth has happened only in the past several years. Truthfully, it took longer than expected for our company to see success. But we were patient, and we built something that would last. When I came to the Bay Area, I heard a quote attributed to Steve Jobs that’s stuck with me ever since: “Overnight success takes a hell of a long time.” It can be tempting to try to fast-forward, but remember that getting VC funding isn’t always the answer.

No Funding? No Problem

Over time, a company’s valuation has mistakenly become associated with its potential. Of course, I can’t expect you to take my word for it, but well-known VC Fred Wilson points out the same thing. Raising money just because you can is a dangerous mentality that can cripple your long-term prospects and tie down your tech to your investors’ wishes. To get by without relying on investors, follow these four tips.

1. Focus on creating value.

Selling a product is much harder when the benefits are dubious or when the use cases are atypical. When you create a product of value that solves a common customer pain point, you’ve done three-quarters of your sales job. It can take years to create this value, partly because it can take years to understand a problem well enough to efficiently and effectively solve it. If solving problems in business were easy, all startups would reach unicorn status.

Once you’ve established your product, you’ve only just begun. Every customer you get has something to contribute toward improving what you’ve created. Welcome feedback, especially criticism, because it helps refine and improve your product, leading to happier existing customers and a smoother sales process. Your product or service is the center of your business, so always emphasize its quality and value.

2. Find channel partners.

When you have limited sales resources, it’s critical to think of the ways your product or service would complement something another company is already selling. These companies are your channel partners, and they represent huge potential. Eliminate friction and make it easier for them to sell their products, and you’ve unlocked incredible value.

When your partners start to pitch your product to their customers, your company has reached a turning point. In this case, you’re using your partners’ sales and marketing resources to sell your product, yet still, everyone benefits. You get additional sales without dipping into your resources, your partners deliver a better service, and customers using both tools together have the best experience.

3. Be your company’s first salesperson.

A founder-led sales initiative is crucial. First, spending time in sales teaches you about what your customers really want. It helps you refine your product to ensure it meets customers’ needs, allowing you to address any shortcomings while eliminating unnecessary features.

Doing sales yourself also demonstrates a commitment to your customers. On one hand, they’re likelier to make a purchase when they have the ear of the company founder and can get potential issues addressed rapidly. But more importantly, they’re likelier to refer you to other customers. This word-of-mouth advertising can prove to be quite lucrative, and creating outspoken fans should always be one of your primary goals in sales.

4. Let some viable customers go.

Just because a company expresses interest in buying your product doesn’t mean you should sell. Especially in the tech world, certain products can be tweaked to meet needs that you didn’t originally anticipate meeting. Still, these “tweaks” can become extensive and time-consuming changes, and before you know it, you’ve committed to overhauling your product for a customer who isn’t interested in compensating you for all the extra work.

It can be hard to say no to a sale, but your company will be better off if you stick to selling to the customers for whom your product was originally designed. They’ll pay the most because the product perfectly fits their needs, and keeping these ideal customers satisfied will cost you the least. In addition, any changes you make to the product won’t just be one-offs — they’ll be improvements that benefit your entire customer base.

The path I took when founding my company isn’t the right path for everyone — it’s a path. It has worked out well so far, and from my current position, I feel fortunate to have done it without venture capital. I’ve learned valuable lessons along the way, and I think bootstrapping has made us more successful over time because we learned to create steady growth at a sustainable pace.

Entrepreneurs and founders, especially those in the technology industry, often dream of VC funding, thinking it will eliminate their capital problems and let them focus on building their tech tools. They throw parties simply because they locked in funding, rather than celebrating their ability to create value for customers. In some ways, VC funding can be helpful, but it also creates an immense amount of pressure. When VC funding puts you on the fast track, you must be prepared to succeed quickly or lose everything. Sometimes, it’s better to go — and grow — at your own pace.

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Vijay Sajja
Founder and CEO of Evergent

Vijay Sajja, founder and CEO of Evergent, is a technology industry leader with more than two decades of experience building business and operations support systems for service providers worldwide.

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