COVID-19 has exposed business model weaknesses of heavily outside capital-dependent companies such as Uber, Airbnb and Groupon and countless startups who have been forced to lay-off tens of thousands of workers in its wake. At Invictus, we have been long-time first institutional investors in bootstrapped and capital efficient businesses which we believe are poised to outperform in the post COVID-19 new world order.
Our focus is investing in and advising automation-enabled enterprise SaaS companies in the cloud software, Cybersecurity and FinTech sectors, and helping them scale. In addition to capital, we help them scale with access to the Invictus Guild, which is an exclusive network of successful multidisciplinary executives, and our value creation playbook. It is clear that automation, in the form of artificial intelligence generally and machine learning in particular, is and will continue to provide business model advantages to those companies equipped to employ it. We are seeing an acceleration in the paradigm shift to cloud computing environments as traditional on-premise deployments stall, a trend which is bolstered as remote work becomes the norm. This means that the perimeter of the enterprise has moved to every employee’s home, which creates a massive opportunity for cyber criminals and the need to better secure enterprises against internal and external threat actors. FinTech is also positioned to benefit from the COVID-19 pandemic, as the move to cashless payment platforms and next generation banking will accelerate.
We focus on bootstrapped businesses, which are companies that have not raised outside institutional capital previously, or have done much more with less funding than their peers. These businesses have been funded to significant revenue growth and often profitability by investment from the founders, friends and family, and the underlying cash flow of the business. Bootstrapped businesses have long been a highly attractive and significant segment of the market, which we discuss below, and the decreasing relative costs of starting a technology business in today’s environment suggest this trend will continue. We believe the COVID-19 downturn will highlight those companies whose business models are resilient enough to withstand this period, and these companies will win in the post-pandemic new world order.
EXAMPLES OF SUCCESSFUL TECHNOLOGY COMPANIES WITH BOOTSTRAPPED ORIGINS:
Invictus believes that there are many distinguishing principles of bootstrapped companies that make them particularly attractive investments. In contrast to companies that are institutionally backed from inception, bootstrapped companies have the following strategic advantages:
- Decisions are made with financial discipline due to the absence of financial resources
- Solutions are built around real-world, legitimate value propositions and established markets rather than being concepts looking for markets
- Generating sales is a focus from inception since limited resources require them to establish product market fit and a process which funds growth
- There is a lower likelihood of significant, risky strategic shifts, but also a higher degree of flexibility to respond as their markets develop.
- The founders and management typically own a significant, and often controlling, stake and have strongly aligned interests in maximizing shareholder value.
None of these are new concepts in building a technology business. Indeed, these principles have been behind the founding and growth of many technology leaders today that started out as bootstrapped companies, including Apple, Cisco, Dell, eBay, Hewlett Packard, Microsoft, Oracle and SAP. Examples of more recent bootstrapped success stories include 1Password, Atlassian, Axiad, BigCommerce, Braintree, CB Insights, Click Funnels, GitHub, Grasshopper, GroupSense, iContact, Kayako, Mailchimp, RightNow, WhatsApp and Zoho.
Additionally, bootstrapped businesses represent the super-majority of private technology exits in the U.S. As the chart below from CB Insights demonstrates, more than 75% of private technology companies that exited annually since 2017 are bootstrapped companies. In 2019, there were a total of 8,342 exits of private technology companies in the United States. 6,376 of them, or 76%, had not raised prior institutional funding before exiting, and 1,966 of them had raised an institutional round before their liquidity event.
FUNDING STATUS OF TECHNOLOGY COMPANIES AT EXIT:
Many next generation leaders will emerge from the ashes of COVID-19. At Invictus, we take a data-driven approach to understanding the universe of bootstrapped and capital efficient companies with proprietary ML-enabled software. We will be sharing our findings through interviews with some of the most successful bootstrapped entrepreneurs to better understand their success stories. As bootstrapped founders ourselves, we have great respect for, see eye to eye with and want to partner with those who have built businesses this way. If you are a bootstrapped or capital efficient founder, we would love to hear from you. Please visit us at invictusgrowth.com to learn more about our diverse team, the Guild and the resources we bring to help companies scale their businesses and master their missions.
Contact a Team Member:
William Nettles, Co-Founder & Managing Partner, firstname.lastname@example.org
John DeLoche, Co-Founder & Managing Partner, email@example.com
Heather Brien, Partner, firstname.lastname@example.org
Mark Chamness, Head of Data Science, email@example.com
Krishna Chhetri, Principal, firstname.lastname@example.org