🥾 Trends #0019 — Bootstrap Funds

🔍 Problem

Startup founders struggle to find smart, aligned advisors. And sometimes capital.

Venture capital funds provide capital and advice. But they expect billion dollar exits.

💡 Solution

Bootstrap funds can thrive without billion-dollar exits.

VCs depend on outliers. They are known to invest pre-revenue, pre-product or even pre-idea. Most of these investments fail or break even.

Bootstrap funds lower risk by investing in startups post-revenue. They offer an option to non-unicorns.

🏁 Players

Bootstrap Funds

• Earnest Capital
• Collab Capital
• TinySeed
• Indie.vc
• Smash.vc
• Podfund

Portfolio Companies

• MakerPad (Earnest Capital)
• Userlist (TinySeed)
• ScrapingBee (TinySeed)
• Yeluchi (Earnest Capital)
• MemberSpace (Earnest Capital)
• Cotton Bureau (Indie.vc)
• Docsketch (TinySeed)
• Newslit (Earnest Captial)
• Savvy Co-op (Indie.vc)
• Cachix (Earnest Capital)

Advisors

• Courtland Allen (TinySeed)
• Ruben Gamez (TinySeed)
• Natalie Nagele (Earnest Capital)
• Hiten Shah (TinySeed)
• Patrick Campbell (TinySeed)
• Laura Roeder (TinySeed)
• Kevin Ingersoll (Earnest Capital)
• Meryl Johnston (TinySeed)
• Joe Wadcan (Earnest Capital)
• Steli Efti (TinySeed)

🔮 Predictions

• Bootstrap funds will invest in newsletters, communities and courses. Podfund invests in podcasts.
• The quality of advisor networks will make (or break) bootstrap funds. Founders pay more (for capital) to access to these experts.
• Funds will use APIs to vet financials and spend more time vetting teams.

☁️ Opportunities

• Raise the right type of funding. Venture capital is great for venture scale businesses. If not, consider another route.
• Consider non-dilutive funding options. Such as AppSumo, Kickstarter, annual plans, pitch competitions or selling cereal.
• Join Founder Summit Remote and MicroConf Connect to build a strong network. Get some benefits of a bootstrap fund without giving up equity.
• Give founders a stake in the fund as they give up equity in their startup. This incentivizes them to help fellow portfolio companies. Upekkha is experimenting with this right now.

☝️ Guest Insights

Based on insights from LATKA: Top SaaS Companies --- "What VCs say about bootstrapped companies."

"You're growing too slow!" (Growth)

PlusThis "only" grew from $1.98m in 2018 to $2.18m in 2019. VCs wanted more growth.

"You have too many big competitors." (Fragmentation)

QuestionPro is "just" a survey tool for B2B companies. They have no real moat and major competitors like $8b Qualtrics. The founder doesn't seem to mind. The company broke $25m in revenues and $3m in cash profits in 2019.

"You do too much professional services." (Scalability)

Tenon.io was passed over by the VC world because 50% of their revenue is "low margin" professional services. What folks seem to miss is that customers who pay extra for services tend to stick longer! The company is doing $2m per year, 50% pure SaaS and 50% productized services.

😠 Haters

"Bootstrap funds?! That's an oxymoron."
What's life without a little cognitive dissonance? Roll with it.

"These companies have traction. They should not give up equity."
Some founders beg to differ. They can find cheaper, non-dilutive capital but opt for bootstrap funds instead.

"Giving founders equity in the fund is stupid."
Is it?* Investors hedge risk but founders don't. This makes them more likely to help your portfolio companies. Syndicates may be a better option for founders. See Opportunities in angel investing.

🔗 Links

1. General Partner of Earnest Capital — Tyler Tringas explains why bootstrap and venture models are necessary.
2. Bootstrapping Your Startup to Acquisition — Einar Vollset explains why TinySeed is bullish on B2B SaaS.
3. Trends #0018 — Angel Investing — A look at venture scale startups. Invert to learn.
4. The Alternative Funding Options For SaaS Start-ups Cheat Sheet — Geoff Roberts shares non-traditional ways to raise capital.

Want more?

🛠️ XaaS: Anything as a Service
🧰 Growth Tools
💬 Paid Communities
🍎 Online Courses
💰 Micro Private Equity
💌 Paid Newsletters
🦄 Startup Studios
🏋️ Remote Fitness
🧱 No Code
🎙️ Podcast Memberships
🍳 Cloud Kitchens

You can get more reports at 👉 Trends.vc

Thoughts?

Always trying to make these better.

Any thoughts? Feedback?