Is it possible to grow a company without external fundraising and go straight to revenue? Three Founders Network members, Alan Wilson, Janine Yancey, and Alex Andrei have done just that. Making the decision to fundraise can have a big impact on the business and cause lasting repercussions. With that in mind, each of these founders had various reasons to avoid fundraising and go straight to revenue.
Building revenue without fundraising is sector-agnostic: each of these speakers comes from different industries.
Introducing the Team
Alan Wilson is the vice president and co-owner of video game developer Tripwire Interactive. Janine Yancey is the founder of Emtrain, a culture tech analytics firm that helps provide education, advice and analytics on workplace issues like harassment, bias and ethics. Finally, Alex Andrei is the founder of Big Interview, which is the leading developer of virtual mock interview software. Let’s take a closer look at what we can learn from the stories of each of our participants.
Going straight to revenue without fundraising has its pros and cons. Only you can decide what you’re willing to part with.
Generating the First Revenue
Alex: Build Your Consulting Practice First While Building Your MVP
Before founding Big Interview, Alex learned a very important lesson while working in the consulting industry. The lesson was to ensure income by charging consulting fees while deciding what to build. You grow from that point on. In his case, he knew a lot about the interview process: he could confidently train companies on how to conduct interviews. He could also help people on both the giving and receiving ends of the interview. His company did this for a couple of years before launching their product.
When he looked back, he discovered that even though mock interviews on Skype existed, there wasn’t anything that allowed people to practice their interview skills. It took Alex about four months of building the site’s frontend and hiring an engineer for the backend to complete the product. They also created polished, professional demos to show what the Big Interview platform was capable of.
Janine: Working with Clients and Building a Platform to Teach Them
Janine was a practicing lawyer at the time she founded Emtrain. She already had somewhat of an audience in mind before launching the company: her first customers were actually her law clients. In short, she had to switch from being a lawyer to crafting an online learning platform that would enable her to receive, organize, track and act on cultural data accordingly.
Alan: You’d Be Surprised Where Passion and Creativity Will Take You
Alan didn’t really intend to go into the video game development business. Fifteen years ago, there was a large and very active groups of modders. Modders are PC enthusiasts who would take level maps or other assets from a video game and build upon them to create their own levels, stories and so on.
Alan and the Tripwire Interactive team had created some highly acclaimed mods and actually won a contest as a result. This, in turn catapulted them into the industry and ignited their desire to continue development. They then developed one of the first PC games supported on Valve’s (at the time) newly-launched PC gaming platform, Steam.
These founders decided to ensure they had income or revenue while they were building their companies.
Why Not Fundraise?
Each of these founders has an interesting story from where they were to how they earned their first revenue. In doing so and scaling their business, the need for funding becomes greater and creates the question “why not fundraise?”
Janine: Have a Market That’s Fundable
From Janine’s standpoint, the truth was that she was trying to raise money by working with her existing clients. Looking back, she learned that the first step for Emtrain was to have a market that was fundable and known. Although she had clients, it was going to take a lot of effort to craft a plan in a chaotic market. She had to look outside the “bubble”. Why spend time fundraising when she could use her existing expertise and clientele as a foundation and build upon it?
Alex: Ensure Product/Market Fit
For Alex, the decision to forego fundraising wasn’t one that he actually considered until he met with VCs. The VCs actually believed that his startup did the opposite of what it actually did. He realized that from their perspective, he didn’t have a product/market fit and he didn’t have the kinds of things that would check all of the fundraising boxes; they thought he didn’t have a workable business idea.
Therefore, Big Interview started their sales process by approaching colleges and universities. One of the reasons why he didn’t solicit funding was his issue in articulating his MVP: he couldn’t really prove why such an interview platform was needed. Essentially, he had to create the industry where there was none. As he sold, he would name drop those universities in his outreach to others, and build from there.
Alan: What Would We Have to Sacrifice to Get Funded? Is it Always Worth It?
Alan’s decision to forego funding wasn’t actually a conscious decision. Before Tripwire Interactive was formed, the founders went to a game developer conference where larger companies were very interested in what they had already built. The developers were very interested in funding them… in exchange for their IP.
That lead Alan and his team to ask themselves, “if these companies get our IP, what does that leave us with?” Even if the game makes a lot of money, the publisher makes a lot of money and owns the IP, but the actual developers might get some of that money and the opportunity to make a sequel. Giving up that kind of control and equity wasn’t really worth it!
Some founders have to demonstrate that the market does indeed exist… by creating it themselves.
Getting Those First Customers
Alan: Being in the Right Place at the Right Time with the Right Market
Alan and his team were lucky, when Red October Ostfront 41-45, was first released on Steam, they made enough in the first 24 hours to cover their development costs; the rest went into the next game. Their focus was on building buzz within media outlets by promising exclusive trailers or other behind-the-scenes gems that other journalists or websites didn’t get.
Alex: Namedrop Existing Clients and Leverage that FOMO!
Alex employed more of a shotgun approach in the beginning. He and his team scraped a database and sent out customized emails to every university in the U.S. From thousands of emails, they got 40 demo requests.
They then took the time to understand how colleges and universities buy things, and what the limits of their budgets were. From there, they created demos which generated interest from the universities. Once they got their first customers, they name-dropped those universities when pitching to others. No one wants to be left behind when it comes to educational technology, and Alex and his team used that to their advantage by offering free trials before they started charging for Big Interview.
Janine: Never Underestimate Word of Mouth
Janine’s first customers were her own clients. Her process, which also involved a demo, took them from prospects to clients within a few weeks. Google was her first actual customer but from there, it has spread – surprisingly by word of mouth.
Getting customers takes tenacity, creativity, leveraging your existing network and a bit of luck.
The Bottom Line: Which Path to Funding Is Right for You?
Although these startups exist in markedly different industries, with vastly different audiences, none of them had what a clear roadmap. Oftentimes, they went into the funding process completely new and inexperienced. But they also realized that , if they were to fundraise, what they’d have to give up in time, equity and control was more than they were willing to part with. Other times, they couldn’t truly articulate their vision to investors, so had to strike out on their own to make it a reality.
But each time, their diligence and commitment to their startup held fast, providing proof that funding isn’t always a necessary ingredient for success. You’ll need to ask yourself whether or not funding is the right choice for your needs. Ask yourself what are the tradeoffs and think about how it’s going to help you hit milestones. Sometimes starting with revenue is the best way to get your startup off the ground.