Last year Madison-based SwanLeap received a prestigious honor in the business world---it was No. 1 on the Inc. 5000, earning it the title of fastest-growing private company in the U.S.
The five-year-old logistics tech company posted a revenue of $99 million the year prior, an astounding 76,000 percent increase from three years before. SwanLeap did $170 million in revenue 2018, said CEO Brad Hollister, adding he expects the startup to hit $300 million this year.
Those are big-league numbers for the Madison startup. But that doesn't mean it's made Hollister flush with cash. In fact, he said there are many employees on SwanLeap's staff that make more than he and his co-founder Jason Swanson combined.
Such is life for many bootstrapped startup founders, who opt to reinvest much of their salary back into their business rather than add an extra zero to their paycheck. Hollister and his team are among a wave of tech entrepreneurs who are ditching venture capital in favor of reasonable growth metrics, company control, and their equity.
"Is it time to make a little more money and be comfortable, or should we hire two more developers and grow our product?" Hollister said.
"To be honest with you, I like not having a board"
Those kinds of business decisions are what bootstrapped entrepreneurs face every day---figuring out how to find enough clients and generate enough revenue to make payroll, often while competing against companies that are raising millions in venture capital. Last year U.S. startups collectively raised an all-time high of $131 billion in VC as investors look to pump startups with cash to help them grow faster than they ever could otherwise, in hopes of scooping up marketshare and providing massive returns to those who put money into the business.
But in Wisconsin, some founders are bucking the VC trend out of fears of growing too fast and giving up too much control over their company.
Chris Widmayer started his business Penrod, a company specializing in CRM solutions on the Salesforce platform, in 2010 with $1,000 in the bank. Starting with consulting work, the startup took any job that generated revenue before eventually earning its first million-dollar deal when the company had less than 12 people.
"That money was basically our VC," Widmayer said. "We were able to sell and build a brand and put a lot of our sweat equity into that. And because we did that we were able to get our revenue numbers in a fine place."
Like SwanLeap, Penrod is no stranger to the Inc. 5000. It ranked No. 442 in 2017 and No. 480 in 2018, and Widmayer said the startup is growing between 20-40% year-over-year.
Widmayer said he's not anti-VC, but if he were to ever give up equity in his business in exchange for funding, "it would need to come with real, real, real growth that I can’t do off the current revenue that we’re bringing in."
"To be honest with you, I like not having a board," he added. "I have a group of advisors, but I don’t have a board of directors dictating my decisions. And that's been nice because we can be very reactive. It gives us an advantage in the marketplace."
Wisconsin has a history of bootstrapped tech successes. Epic Systems, a Madison-based healthcare software company founded 40 years ago by Judy Faulkner, is one of the largest bootstrapped software companies operating today. It does $2.7 billion in annual revenue and employs nearly 10,000 people. In Epic's early days, a bank loaned the company $70,000 to buy a computer and Epic sold shares to its workers for $70,000, which was all the money Epic had, a spokesperson said, adding that the company stayed lean by keeping a small headcount, and focusing on customer satisfaction and product innovation before quarterly earnings.
Epic has vowed never to sell and never to go public, and Faulkner's control of her business has helped her to become the third richest woman in the U.S.
"[Bootstrapping] creates more wealth for entrepreneurs, and they retain more ownership and control over their destiny," said Matt Cordio, the founder of Milwaukee-based Skills Pipeline and the creator of Startup Wisconsin, an organization that works to boost the state's tech and startup ecosystems.
Not taking venture funding means owning more of your business when you go to sell. Recent Wisconsin startups that have gone from bootstrapping to acquisition include education software maker Digital Measures, which was bought by Watermark; healthcare software company True Process, which was acquired by Baxter International; and Shift Savings, which sold to SafetyNet, a spinoff of CUNA Mutual Group.
One reason why some Wisconsin entrepreneurs opt to bootstrap is due to the relative lack of available venture capital in the state, Cordio said. Even though the state's overall VC funding was up in 2018, Wisconsin still trails its Midwest peers when it comes to capital raised.
"Part of the reason why Wisconsin has relied on bootstrapping is because there hasn’t been a strong venture capital ecosystem and funding environment," Cordio said. "It's probably held back the state's tech ecosystem in certain respects. That capital hasn't been available."
Abby Taubner, a partner at Wisconsin-based gener8tor, one of the most prominent VC firms in the Midwest, said many local companies will opt to bootstrap simply because it's the only available option.
"What we have seen, especially as a result of a relative lack of capital in Wisconsin and the Midwest in general, is the fact that people are bootstrapping to a certain point out of necessity," she said. "I think if a company can bootstrap, more power to them. That's the way to do it---just take your revenue and dump it back into the business."
But not all startups can survive that way. Taubner pointed to Milwaukee-based Bright Cellars, an online wine delivery startup with $13 million in funding, which has had to spend heavily up front to acquire customers. VC has allowed Bright Cellars to gobble up marketshare faster and get more revenue in the door.
"If they only went off revenue, they would not be able to acquire as many customers on the front end," Taubner said. "Ultimately, (venture capital) allows you to grow faster and be more competitive, and be able to hire a talented team that helps you build out your product faster in a better way."
Gener8tor also offers a non-equity program, called gBETA, which provides a six-week accelerator to early-stage companies. Taubner said the program goes into great detail about how venture capital works and the risks involved to founders, and what it means to take funding from an investor.
"On the gBETA side, we almost scare people out of taking venture capital during our kickoff weekend," she said.
Bootstrapping, at the end of the day, forces you to be very good at your business, Hollister, SwanLeap's CEO, explained.
"You don’t have to be good at what you do if you have $30 million (in venture capital)," he said. "You can make a lot of mistakes and throw money around, and fool yourself into thinking you have a viable business."
"We’re getting market validation every single day," Hollister continued. "I quit watching the news of our competitors because I think they’re irrelevant. People are going to be out of business when the money runs out."
