Let's say you can get to $100mm in recurring revenue, and your company has $95mm in costs. Let's say that you know that every $1 in cash that you invest in Sales will generate $1 in new business every year from here on out. (This is a good business after all!)
If you don't take any VC money, your business will grow as follows: 100M -> 105M (100+100-95) -> 115M (105+115-95) -> 135 (115+115-95)
Now let's say you take $20mm from a VC, or the public markets. You now are investing $25mm in the base year, from which to grow.
Your revenue stream would be 100M -> 125M (100+ 120 - 95) -> 145 (125 + 125 - 95) -> 185 (145 + 145 - 95)
So you have a 185mm revenue company rather than a 135mm company on the back of the investment. If your company trades at a $5x revenue multiple (similar to what Qlik traded at today) you have increased the value by $250mm for the $20mm initial investment.
The math is a little fuzzy, but the general idea is as long as you can use the money smartly to increase your rate of growth faster than the VC (or public market's) required return on capital, it's worthwhile for all parties.
This may be why PE companies are getting into the game lately.
It's possible to create a more realistic model, but the core idea is "If you have a great company, it still can be ok to get VC money to grow it even faster."
[0] https://www.google.com/finance?q=NASDAQ%3AQLIK&fstype=ii&ei=...
The math is off, mathattack.
Growing by $5m a year on $100M (5%) doesn't mean you'll grow by $25m a year on $120M (20.8%).
You make the good point though that raising the growth rate from 5% to 6% would make a difference.
But the idea is that $95M of the costs are fixed, so whatever you add goes to growth. So on 100M of revenue you have 5M to invest in growth, which will get you a 5M revenue stream the next year. On 120M you have 25M to invest.
This sounds far-fetched for traditional businesses, but isn't so off for SaaS companies. Once you get through sales, general and administration and fixed R&D costs, the margins on great SaaS companies is very high. It can be 80 or 90%. This is why GAAP metrics can look bad on them for a while (have to get over the fixed cost hurdle, and sales costs can be very high) but once you're profitable, it's a huge cash cow. This is one reason why Salesforce and Bloomberg do so well. They make tons of cash, and any competitor will need to lose money for several years to catch them.
The Atlassian guys bootstrapped to $60M/year in revenue (in 2010).
The money will be used to give some liquidity to the founders and employees, expand its product portfolio, and possibly acquire other startups.[1]
There are plenty of other posts around where MCB talks about how the capital let them pay bonuses for early employees etc.
[1] http://techcrunch.com/2010/07/14/atlassian-accel-60-million/
I'm sure Casper gives Saatva very healthy competition -- in fact, it's the only of these companies that I've even heard of until now.
By this definition Bezos was not bootstrapped.
Spring / traditional mattresses are a bit of a challenge (size), but foam mattresses can be packed up relatively conveniently (Leesa was 2x2x4.5 for a queen) and shipped w/ a decent 90ish day try/return policy.
Different than the days of going to a mattress dealer and having the same manufacturer give different names to the mattress based on dealer so "price comparison" was difficult/impossible.
He said if he could do one thing differently, it would be to only take money when he felt that opportunity was slipping away, and there was nothing else he could do about it.
It's true beyond a doubt that if you bootstrapped a $100mm in revenue company that can profitably grow from reinvestment you don't need VC money, and in fact if you want to IPO, you can you do that without giving away any upside at all (until the IPO day that is, when the bankers get their cut).
However, getting to that point might be easier with the aid of some wise and well connected folks.
At least, that's the good part of SV.
Option 1: hedge fund: take a large amount of outside capital, but also sink enough skin into the fund that your interests appear aligned. If things go well, you can become a billionaire within a decade. If things go badly, you're burnt out of the industry (with famous exceptions) and you've lost a significant part of your net worth.
Option 2: start a prop shop or just trade your own assets, take no outside capital, go more slowly and take less risk (as less hunger for returns) and you might have a lower probability of burning it all, but you can only increase your net worth so much within the same decade. At most a few multiples of what you started with.
If there's a bull market, the first strategy is especially attractive because a. you can level up like crazy because debt is cheap (on top of the investments in your fund which are also coming in cheap) b. everything goes up, so just find the more volatile stocks (e.g. tech) as they go up faster. This strategy has made many people rich but you need to find a way out before the crash, because you'll find the perfect storm of your financing terms tightening suddenly, your high volatility stocks cratering faster than the rest of the market (that's why you selected them!) and your LPs (investors) all wanting out at the same time. There'll be white knights but they'll take their pound of flesh.
The prop shop partner on the other hand can wait out the crisis and buy the bottom or safely trade the volatility. He has comparatively less pressure on all of the above. These are the moments of greatest opportunity.
I always thought the same applied to startups. Eschew massive financing if you can, aim for lower volatility markets, and start the thing in a downturn when you have less competition and people are more sensitive to quality, is a lower upside but higher probability of upside strategy.
I know it's a lot more common for tech companies to take venture capital but there are plenty who do not.
“I don’t remember seeing a company going public on the Nasdaq in the last 20 years who arrived at the I.P.O. with only management owning the company,” he said. “It’s almost a rite of passage.”
Why would you sell a business that you owned 100% of that was able to be bootstrapped to $100 million in revenue. What possible business that you could invest the proceeds in that would be better than this?