You don’t need no stinkin’ venture capital.
Startup success is about focusing on the right things.
I’ve taught entrepreneurship at Stanford for ten years, and the number one question my students ask is “How do I find a venture capitalist?”
And my answer is just go build a great business. That’s what you should be focused on.
I was thinking about this as I read this week about how Sequoia, the venerable venture capital firm, wants so badly to invest in Zapier that they had to buy some shares on the secondary market because Zapier isn’t interested in taking their money. The Zapier team has grown the company to nearly $100M in revenue through hard work, careful management, and no venture capital. They like it that way, apparently.
That got me thinking about how much I admire founders who have built great businesses without venture capital. Many people in Silicon Valley today think that the secret to success is to get VC. But the actual secret to success is to work hard, take care of customers, and build a great business.
It ain’t about selling VC’s — it’s about selling customers. If you do that, the money will follow.
Here are some of my favorite examples:
- MailChimp was founded by two marketing guys who got tired of creating newsletter templates for their clients, so they built some software to automate the process. Today they are approaching a billion dollars a year in revenue, and have taken zero outside funding.
- Lynda was founded by Lynda Weinman and her husband as an online learning platform to go with the books she was writing. They grew the company for 18 years without taking any outside investment. In 2015 they sold the company to LinkedIn for $1.5 billion.
- Shopify was founded by three guys in Canada who wanted to build an online store for snowboarding equipment. Unhappy with the existing e-commerce platforms, they decided to build their own and sell it to others. They ran the company profitably for six years before finally deciding to take some outside money for scaling. Today they are doing almost $2 billion in revenue.
- GitHub was bootstrapped and grown profitably for 4 years before they raised a first round of $100M (!). Six years later they sold it to Microsoft for $7.5B.
- Simplisafe is a hardware company (!) grown profitably for 8 years before accepting their first venture capital.
- Wayfair is an e-commerce company that was grown for 8 years without venture capital. They finally took some, then had an IPO, now they have a market cap of $30B.
There are many other examples, of course. These are just a few.
I’m not saying that venture capital is evil, mind you — it’s a great tool for high-growth startups to leverage, and many have done so successfully.
But my point, as I’ve written before, is that I think too many wannabe entrepreneurs craft their entire startup plan around what they think venture capitalists will like — which is completely backwards. Think about what customers will like. Build products that solve customer problems. Delight customers. Manage your venture well and focus on customers. If you do these things successfully, the capital will be the easy part.
This piece is adapted from an earlier edition of my newsletter.
