The following post was written by Bart Bohn, Director of ATI-IT/Wireless
Many entrepreneurs come to ATI with a plan that requires VC funding from Day 1. Unless you have done 5 startups—all VC funded with success—this is not realistic. A very frequent early conversation we have with both companies applying to join ATI and newly admitted members is to restructure their initial funding plans to focus more on a bootstrapping approach, building towards a later VC round. This echoes a recent conversation I had with Bijoy Goswami of Bootstrap Austin about how bootstrapping and VC-driven approaches are not necessarily contradictory, but can instead be sequential. This does not apply for many of the “heavy lift, hardcore IP companies” – e.g., clean energy, biosciences, telecommunications, etc., that need significant investment to even build a product, let alone enter the market.
The point was driven home by ATI member company Gendai Games announcing they raised over $1 million in funding from a great group of investors– this amazing syndicate was led by DFJ Mercury, wow! What they did was bootstrap the company well past initial traction and then raised a Series-A. Below is an illustrative chart (meaning I made up the figures, except for the 70,000 figure from the press release) based on the number of times GameSalad, their development platform, was downloaded:
As you can see, they raised money many months after they hit the traction inflection point. The magic of web 2.0 startups is that they can launch a commercial solution with minimal capital AND survive the initial ramp. The ability to survive the initial ramp is hugely valuable – they did not have to raise funds to float inventory or pay vendors or other up-front costs; instead, the revenue per customer covered the variable cost to serve the customer, which meant Gendai Games could spend the next “6 months” learning about the actual business and not product delivery. The net is that when they eventually raised the Series-A, they had significantly more leverage, control, influence on participants, ability to retain executive roles, etc. than if they had taken the $1M on day one or just after the traction inflection point. Furthermore, given the glut of super-angel, seed fund, and accelerator-funded companies, they also took the time to build a sustainable company that did not require them to raise funds in a very narrow window. I am sure they prefer having a financial cushion and money to grow faster, but they bootstrapped themselves into a viable company – a tremendous feat of entrepreneurship.
At ATI, we frequently discuss with our member companies how to build a company in an intentional, controlled manner that constantly reduces risk and provides options. The best way to do this is to build a sustainable underlying business which also tends to preserve room on the cap table and reduces dilution – and we believe this applies to web 2.0 and internet companies. Congratulations to Michael, Tan and the entire Gendai Games team, your success thus far is well deserved and we are very proud and excited to have you part of the ATI family.