Bootstrapped Unicorns

In the fall of 2007, I met Sridhar Vembu, CEO of Zoho, for the first time. At that time, no one had heard of him. He was flying under the radar of Silicon Valley. Sridhar had a small network management tools business that basically functioned as a highly profitable cash cow. It was not an earth shattering idea. But it gave him cash to play with.

And play he did. He decided to go after Salesforce.com with a Software-as-a-Service Customer Relationship Management product at a price-point that was one sixth of what Salesforce.com, the market leader, charged. He offered the product to small businesses, and customers lapped it up.

VCs started chasing him from every corner of Silicon Valley. Acquisition offers started floating in. Fast-forward to 2014: Zoho is doing over $300 million dollars a year in revenue. It has been built without outside capital, entirely.

If you value the company today, it would comfortably justify a multi-billion dollar valuation.

If you analyze this case study, what strikes you is that Sridhar’s first business idea was not fundable. He bootstrapped it by selling to customers as early as he could. He grew the business organically, with revenue and profits, not outside capital.

But once the business started generating decent profits, Sridhar decided to go after a potentially bigger opportunity.

The moral of the story is that even an entrepreneur with a smaller idea that is not fundable can build a Unicorn company. The initial cash needs to come from revenues, not financing. But later, as the business finds its stride, generates profits, it can offer the opportunity and cash for pursuing a bigger idea.

Zoho is definitely a bootstrapped Unicorn, an even rarer breed of technology companies than the already rare venture-funded Unicorns.

A similarly rare bootstrapped Unicorn company is eClinicalWorks. Founded in 1999 by Girish Navani, the company operates in the healthcare IT space, offering practice management and electronic health record systems as Software-as-a-Service.

As of 2014, the company does over $300 million in revenue, and if it were to be valued, it would easily be a multi-billion dollar company.

A third example of a built-to-enjoy company that has way better monetization than many companies out there getting Unicorn level valuations is Veeam. Ratmir Timashev founded the company after he had a good exit with his prior business.

The company identified a niche opportunity to sell cloud-backup services to virtualization administrators early on. The market grew rapidly. Today, they’re approaching $500 million in revenue, targeting a billion in 2018. That is revenue, not valuation.

The total investment that has gone into this company is $5 million.

I’ve had lengthy conversations with Sridhar and Girish over many years. Neither cares about market cap because they are not interested in selling these businesses. Each, in his own way, is creating value, which is primarily what he cares about. Sridhar is experimenting with some radical methods of recruiting and training young people in India, while Girish truly wants to change the face of healthcare administration. Both of them are personal heroes of mine.

I don’t know Ratmir quite as well, or for as long. However, I find his story absolutely fascinating.

I have deliberately chosen to include their stories here, to offer a slightly unorthodox perspective to the classical venture-funded exit-focused thought process. I hope you enjoy their stories as much as I do.

Excerpt from my new book, Billion Dollar Unicorns.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

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Photo: Rob Boudon/Flickr.