Home How One Startup Managed Its Investment Cash Flow

How One Startup Managed Its Investment Cash Flow

Backblaze, a leader in cloud storage, just celebrated its fifth anniversary. While the company is now profitable and its seven founders are getting paid salaries, that wasn’t always the case. We got a chance to look deep into the company’s balance sheet and see exactly how it managed its cash flow over the past five years. The tale offers insights for all kinds of entrepreneuers. Contrary to popular belief, the road to startup success isn’t always paved in gold: Instead, founders often work for years without getting paid at all.

This isn’t the first time we’ve written about Backblaze’s distinctive red storage pods. The company now boasts millions of dollars in revenue, and more than 30 petabytes of managed storage in its data centers. Incorporated in April 2007, over the course of two years – from June 2007 to September 2009 – the founders invested $185,000 of capital in the company, in the form of loans. These loans were written with a 6% annual interest, and the founders started paying themselves back in August 2010, taking a full year before the $185,000 was completely paid off.

This wasn’t Backblaze’s only startup capital. It also raised a round of $370,000 from friends and family, including some Google executives, in early 2009. But those were equity purchases. An interesting side note is that all of the founders went for nearly 18 months without paying themselves any salary, and then took minimum wage for the next 14 months before slowly ramping up their paychecks. “It wasn’t until the beginning of 2011 (three and a half years after forming the company) when most of the initial team was at the market rate they made before starting the company,” recalls one of the founders, Gleb Budman. “We even had a funny period of a few months where we hired our first employee (a support person), and he made more than all of the seven of us combined at that point!”

There are several takeaways from the Backblaze story: First, don’t assume that you will immediately get rich, or even make any money whatsoever. There are going to be lean years as you build your business and ramp up your operations. Granted, the business that Backblaze is in – online storage – is incredibly capital-intensive. The company had to design and fabricate special servers, as you can see in this YouTube video:

Second, sometimes you may need more help after you have gotten started. Backblaze’s original five founders added two additional investors who also went without any salary for eight months.

Third, as the video shows, sometimes you forget the most obvious things, such as an on/off switch for your fancy customized servers. Take some time to step away from the computer, the office and your usual routine to get some perspective.

Finally, hindsight is an incredible tool and just because you think you have a great idea, don’t assume that anyone else will agree with you or want to invest in your idea. Budman’s then-girlfriend thought he was nuts to quit his day job and work without a salary. But she must have believed in him, because she is now his wife. “One of the things I love about Silicon Valley,” he says, “is that you have plenty of other people who are also nuts and want to join, help or support you.” 

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