I was part of the problem. As a journalist covering the startup ecosystem, rag-to-riches startup stories were my bread and butter. I’m not saying my stories were not genuine: I’m saying that I contributed to perpetuating the Big Lie of venture capital.
To be fair, I was not on it. I did not know it was a lie.
Of all the people, I should have been aware of the Big Lie. Unlike most people, I actually was paid to interview venture capitalists, read market research about VC investment, failure rate of startups and so on.
I knew very well launching a tech startup was a foolish move. I knew that only 0.91% of start-ups end up raising from angel investors and only 0.05% from venture capital firms.Only 0.91% of start-ups end up raising from angel investors and only 0.05% from venture capital firms. Click To Tweet
I even knew that only about 30% of FUNDED startups manage to exit.
I knew angels and early-stage VCs are not investing in ideas; they’re looking for a great founder, a great team, a huge market, a product that works and some kind of proof that the market wants the product.
I knew delivering all of those things would be very hard without money or personal savings. But I did it. And nonetheless, I failed at closing an angel round for Hardbacon. There were a lot of angels interested and even some VC firms, but no one wanted to sign the first check.
I personally spent a lot of time during the last four months meeting with prospective investors in Montreal and Toronto. And I realize now I should have been investing all my time in acquiring customers, making them happy and signing deals.
I’m not saying that, since I failed at raising an early-stage round, no one can. Far from that.
I’m just saying that, like a lot of other entrepreneurs, I naively believed the Big Lie of Venture Capital.
There are a lot of early-stage rounds happening in Montreal. No questions about it.
What I was naive about, like so many founders, are the requirements for raising such a round. No fewer than 38% of startups received funding from friends and family. Early-stage investors don’t like to sign the first check, so they tend to prefer investing in startups that already did a friend & family round.
Another thing investors like is when the founders made a sizeable investment in the startup themselves. As a result, when you read in the media about entrepreneurs starting in a garage or in a dirt-cheap apartment, well, they indeed started in those settings. It’s just that they omit to mention that sure, they were working from a one-bedroom apartment, but they also had rich parents or were wealthy themselves.
It’s not only about the money. It’s also about the great team. But what is the definition of a great team? For most investors, not mentioning their predilection for all-male founding teams and distaste for non-whites, it’s either people that had a successful exit in the past or people that attended an Ivy League university, preferably Stanford or Harvard.
It’s no surprise that there is a disproportionate number of VCs that graduated from top universities, and that those same universities are where a disproportionate number of founders studied. And trust me, it’s not only in the US. Go and check the Linkedin profiles of Canadian VCs and funded entrepreneurs, and you’ll find a surprisingly high number of Ivy League educated Canadians.
So, unless you come from money, attended a prestigious university in the States or sold your previous startups for a lot of money, you should assume that you’re never going to raise early-stage capital. Don’t use counter-examples. Sure, they exist. Sure, Oprah was a dirt-poor single mother before becoming a billionaire, but those are fairy tales.Unless you come from money or attended a prestigious university, you’re never going to raise early-stage capital.Click To Tweet
Bootstrapping a tech start-up is not for the faint of heart. It is extremely difficult, especially for SaaS business like Hardbacon, because we need thousands of subscribers to break even.
But given the low chances of getting funded at our current stage, if I were to start-over, I would have taken the slower, but more cash-rich route of doing a little bit of services to finance our product business. As of now, I stopped taking meetings with investors to focus on signing deals with financial institutions and preparing our equity crowdfunding campaign. Yep, we’ll raise money directly from our users.
The problem, with the Big Lie, is that it kills a lot of startups that end up building their strategy around a capital infusion that will never come, and end-up wasting a lot of time trying to fundraise. Some of those startups would have had a better shot had they focused on sales. It’s still super hard, but the odds are better. The problem is that bootstrapping success stories often remain unknown, as the valuation of those startups is never announced in press releases.
Mailchimp has built a 700 employees highly profitable SaaS business out of Atlanta doing just that. Basecamp is another highly successful SaaS built out of Chicago that never raised. In Canada, there is GSOFT that built a highly profitable SaaS business out of Montreal, and PlentyOfFish, that was built out of Vancouver. When the dating website was sold for 575 million in 2015, its founder Markus Frind pocketed the whole amount, since he did not have any investor. Not a bad, hey?