Thursday, December 31, 2009

Bootstrapping a startup



Our recent nomination as a finalist in The Crunchies Awards for 'Best Bootstrapped Startup' got us thinking about how we've funded ourselves to date and we thought we'd share that with you, and some of our thoughts for the future.

Mike and I, often with the help of Jodie, have dabbled in various startups over the years while working for other companies. It got us thinking a few years ago that we might want to try it out full time, so we figured we'd do our best to save some money in case we wanted to leave our jobs and try a startup full time. And if we decided not to do that, hey, savings not exactly a bad thing to have done!

So when it came to quitting our jobs we each put in about $25k to the business, and we each have enough in reserve to live a reasonable Sydney lifestyle for 2 years without needing to draw a salary.

One of the great things about Shoes of Prey as a business is that it hasn't required a lot of capital. The big capital requirements for traditional retailers are store setup costs and capital required to buy stock, neither of which we require. So our initial investment of $50k, and the equivalent of 1 person working full time for 12 months has got us to where we are now, breaking even without paying Mike, Jodie or I a salary.

That said, we've got some interesting choices moving forward, some of which may require capital.

1. We can grow via the organic path. We focus on online retail, do some offline retail events and only invest in further offline activities from our profits.
2. In addition to online retail, we can invest more heavily in offline retail opportunities whether that be through instore displays owned by others, such as our experiment with The Grand Social, or even opening our own stores. Either of these could require a capital investment beyond our means as founders, so we're going to start having conversations and learning more about the venture capital industry in case we choose to go down this path.

Clearly there are significant pros and cons to taking on investors. We'd love to have the capital to grow quickly, and there are some great opportunities to do that in the offline space. And having experienced investors involved in our business would mean we'd learn a lot and get some great advice. However at the same time we like the level of control we have over the direction of the business at the moment - we're able to experiment and learn the best way forward without the time pressure of an investor who wants to exit at some point in the future. And going down the path of taking on investors would be a time consuming process.

If you've had any experience with angel investors or the venture capital industry we'd love to hear your thoughts on how you think we should proceed.

And if you're so inclined, you can vote for us in the Crunchies Awards here once a day until January 6. :)

5 comments:

  1. Actually reading a book which covers this very topic for online startups called "once your good, twice ur lucky: silicon valley and the rise of web 2.0". It says that most of the entrepreneurs regretted raising vc and giving up control. As the next gen of web 2.0 entrepreneurs came around, costs had significantly decreased and they didn't need as much capital for their startups.

    If they needed, they turned to friends who were entrpreneurs and were able to get money from them or other angel investors. I think the point is to avoid vc for as long as possible!!

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  2. Well I can't entirely agree. True VC take some control but they are so often painted in a negative light.

    My view is that you are at Angel stage. Have been there many times both as angel and boostrapped company.

    Simply to scale you need cash. The degree of cash will determine which route. Bootstrapping is a great way tp prove a concept and market but for real growth you need funding. There are exceptions of course but they are rare.

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  3. I agree with inspiredworlds. Many startups seek funding right from the start when they should take their business as far as possible before seeking funding. Aside from keeping control of your business bootstrapping breeds creativity for marketing on a low budget and in general teaches you to spend wisely which are great traits to have in business.

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  4. Hi Matt, thanks, I'll take a look at the book. That's interesting to hear that most entrepreneurs who took funding regretted it later.

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  5. Fergus and VentureDen, thanks for sharing your thoughts. Sounds like we've got some thinking to do to determine what's right for our business.

    Wooshii and VentureDen both look like great sites by the way. I'll keep them in mind as we go through this process. :)

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