Bootstrapping to an Exit

I publish this series to discuss the nuances of bootstrapped entrepreneurship. Please subscribe to my Best of Bootstrapping series to never miss an article and?learn what to expect from 1Mby1M.

Over the last decade and more, I’ve had the privilege of working with a large number of bootstrapped entrepreneurs. These include self-financed companies and also modestly capitalized startups that operate in a capital-efficient manner applying the principles of bootstrapping. [You can take our free?Bootstrapping Course?to review these.]

For our?Seed Capital?series of podcasts and blog interviews, I’ve interviewed hundreds of investors, especially micro-VCs and angels who are playing in the early stage game.

I’ve asked all of them the following questions:

• The commercial Internet has now been around for almost 25 years. Lots of stuff have already been built. Nowadays, there aren’t so many wide open opportunities out there. But there are many, many niche opportunities.
• Some of these businesses need to be built for very small amounts of capital: Invest $1-2M, and sell for $10-15M. Do you have appetite for this type of investment?
• What about a notch smaller? Invest $250k-$500k and sell for $5-$10M?
• What about a notch larger? Invest $5-10M and sell for $50-$60M??

All interviews are available on the?blog?and as?podcasts.

As I expected, a large number of investors are still chasing Unicorns. They are interested in investing in companies that will go from 0 to $100M in 5-7 years. And they will consume a great deal of capital in the quest of hitting the coveted billion dollar valuation mark.

However, I am pleased to report that I have spoken with a number of investors who recognize the niche opportunities and answer?yes?to my questions above.

Yes, they are interested in investing small amounts and harvesting through smaller exits.

In that strategy is the recognition that most acquisitions happen in the sub $50 million price-point.

Therefore, for all stakeholders to make money, a capital efficient strategy is required.

I’ve also spoken with a number of CEOs and Board Members of public and pre-IPO companies on what they want to acquire. While the larger companies need to acquire significant chunks of revenue, in the smaller companies ($100-$300M), often, there is a different issue. A $100M SaaS company, quite likely, is making most of its revenues from one product. To thrive as a public entity, it faces tremendous pressure to broaden its product line and find one or two additional $100-200M businesses.

How would they do that?

The market, of course, is full of heavily venture-funded SaaS startups with very high valuation expectations.

Most of these are not affordable for a small, recently public or pre-IPO company.

Instead, a small, capital-efficient startup that has shown product-market fit in a domain with strategic alignment is far more interesting as an acquisition target.

So, I have two questions that are worth discussing here:

1) Capital Efficient Startups: Are you considering the?Bootstrapping to Exit?path, or are you obsessing over Unicorns?

2) Small Public or Pre-IPO Companies ($100-200M): Are you able to find small, capital-efficient startups to acquire?

Please use the?Comments?area for discussions on the subject.

Looking For Some Hands-On Advice?

For entrepreneurs who want to discuss their specific businesses with me, I’m very happy to assess your situation during my free online?1Mby1M Roundtables, held almost every week. You can also check out our free?Bootstrapping Course, our?Udemy courses,?YouTube channel,?podcast interviews?with VCs and Founders, and, to?follow my writings, click Follow from?here.