Bootstrapping businesses (running a business without external capital) has been a common practice since the inception of entrepreneurship. While bootstrapping is an understated way of growing a business, it has stood the test of time in all market cycles if done correctly.
This Allied Advisor report profiles operational metrics for bootstrapped companies and has examples of businesses which scaled successfully using this route before taking in significant capital infusion or exiting.
Here are a three key points of the report, and the highlights from their Netcore feature; a company that bootstrapped a $110M ARR SaaS Company.
1. Growth Fueled by Strong Operational and Capital Efficiency
Rule of 40 (Growth rate plus profit margin of at least 40%) is considered as an investor’s benchmark for an investable company. Empirical data indicates that bootstrapped companies broadly score higher on Rule of 40 compared to VC-backed businesses at most revenue levels; VC-funded companies are typically growth focused, often at the expense of profitability.
2. Cost Structure of Bootstrapped vs. VC-Funded SaaS Companies
Bootstrapped companies prioritize operational efficiency through their lean cost structure. With all spending on marketing and R&D sourced from generated income, they focus keenly on optimizing operations. For example, the chart below shows, the marketing cost for bootstrapped is at 17% as compared to VC-funded companies at 27%.
3. Compelling Exit Valuations for Bootstrapped Companies
The selection of an exit strategy for a startup is influenced by its growth stage, market conditions, and strategic objectives. The two exit options that are presented at the end are an IPO or a M&A, the former being more frequent. Companies opting for merger exits command a higher EV/Revenue of 17.2x, compared to those choosing to go public with a multiple of 8.8x.
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Bootstrapping a $110M ARR SaaS Company: The Netcore Story
Rajesh Jain, founder of Netcore, only bootstrapped his business profitably to over $110M in ARR, but also purchased Unbxd for $100M in cash to further accelerate growth. Having grown two successful profitable bootstrapped businesses, here are a few highlights from his interview with Allied Advisors:
AA: You coined the term Proficorn – can you advise what this is for the benefit of founders and
entrepreneurs?
RJ: Proficorn is viewed as an antithesis of Unicorn, wherein founders own complete stake in the company instead of investors.
The trick is to combine profitability of bootstrapped businesses with scaling
AA: You have done it twice in your life – what is the magic to doing this?
RJ: The key is to prioritize a path to profitability from day one, steering clear of a growth-at-all-costs mindset.
Forging a path to profitability swiftly drives frugal operations, ensuring judicious use of limited capital.
Successful bootstrap businesses should seek a balance between profitability and growth, exploring various avenues for profit instead of seeing it as an exclusive choice against growth.
AA: How did you bootstrapped Netcore to $110M ARR without outside capital?
RJ: High gross margins made our company profitable without external funding.
Establishing the initial profit engine is vital to sustain and capitalize on market opportunities, avoiding stagnation.
AA: How did you acquire a $100M business – Unbxd, without using outside capital?
RJ: Our company consistently saved and reinvested profits through incremental growth via product development and strategic acquisitions.
Acquisition was focused on a company with business in key markets (US, UK, Australia) with complementary offerings. Unbxd, with its B2B revenue and India-based team, was an ideal fit, funded by internal accruals.
The vision lies in merging customer data with the product catalog, a unique strength in B2C-Martech, shaping the company’s future.
To read more of the easily presented data in this Allied Advisor Report, click here.
Thanks to Gaurav Bhasin, Managing Director at Allied Advisors for pulling together this report.