Venture Capital vs. Bootstrapping: Jon O’Connell On How To Determine If Fundraising Or Bootstrapping Is The Right Choice For Your Startup

…Why? Stop and ask yourself why you need to raise outside capital. Sometimes it is obvious, like when a company will be pre-revenue for a long period of time but significant capital is required for product development. Other times, less so. Many founders think of fundraising itself as a goal. The goal is really executing on your business plan and product vision.

Founders are often faced with the nagging question of whether Fundraising or Bootstrapping is the best choice for them. What is better, having access to capital or maintaining full control over your vision and profits? What is preferred, to have the seasoned oversight of an experienced investor, or to plow forward with a disruptive and pioneering ‘can do’ attitude? Of course, every situation is different, but what standards can be used to help a founder decide? As a part of this series called “Venture Capital vs. Bootstrapping: How To Determine If Fundraising Or Bootstrapping Is The Right Choice For Your Startup”, I had the pleasure of interviewing Jon O’Connell.

Jon O’Connell, a partner with Crowell & Moring LLP, is a widely respected leader and advisor in the emerging company and venture capital community in Silicon Valley and beyond. Prior to joining Crowell & Moring, Jon was a founding attorney at Atrium, a former hybrid legal services and technology company providing startups with top notch legal advice and other services in an efficient and cost-effective manner. He managed Atrium’s venture capital financing team, which completed over 130+ preferred stock financings in a 2.5-year period of time.

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?

I am currently a partner in the Corporate Group of law firm Crowell & Moring, with a focus on representing emerging companies and investors. I am one of the seemingly few Bay Area locals. I was born and raised in Silicon Valley and always had an interest in working with technology companies, going back to the dot.com bubble of the late 90’s. After attending college in Southern California, I made my way back to the Bay Area for law school. Following law school, I started as a corporate associate in the Palo Alto office of an East Coast firm and have been working with startup companies and investors as outside general counsel since then.

Can you share a story with us about the most humorous mistake you made when you were first starting? What lesson or takeaway did you learn from that?

As a first-year associate, I mistakenly sent an email to an unintended recipient. I was going too fast and fell victim to Outlook’s auto-populate feature. I was embarrassed by the error and felt like an idiot. When I informed the partner on the account of what had happened, he told me about a time when he was a junior associate and made an even bigger mistake. I learned we are all human and mistakes are inevitable, particularly when you send as many emails as lawyers do. I also learned that partners and clients are reasonable and unlikely to judge you over one mistake.

You are a successful business leader. Which three character traits do you think were most instrumental to your success? Can you please share a story or example for each?

• Determination: Law school and the practice of law can at times be a grind. Determination is essential to achieving your goals. I came out of law school during the Great Recession and job opportunities were few and far between. I must have applied to hundreds of firms. It would have been easy to give up, but I pushed ahead and ultimately secured a position at a great firm.
• Ambition: Atrium was an ambitious project. Legal services is a large and fragmented market, and trying to force change in a traditional services business is very difficult. It would have been easy for me to say this is not going to work and pass on the opportunity but I would have missed the chance to do something really ambitious, which, although unsuccessful, ultimately ended up being beneficial to my career path and development.
• Collaboration: Collaboration is key for an emerging companies lawyer. I serve as outside general counsel to startup companies and investors and my clients often need expertise that I do not personally have. One of the main reasons I joined Crowell & Moring following Atrium is that it struck me to be a very collaborative partnership. I have found all that to be true in my 1+ year here. And my clients benefit from my partners expertise in regulatory, antitrust, intellectual property, employment, tax, real estate, and litigation matters.

Are you able to identify a “tipping point” in your career when you started to see success? Did you start doing anything different? Are there takeaways or lessons that others can learn from that?

Yes, in fact the “tipping point” in my career and in my development as a lawyer and business came when I decided to leave the confines of a traditional big law firm and embark on my own startup journey. I joined Atrium in July 2017, as a founding attorney and early employee. Atrium’s ambitious goal was to reinvent the delivery of legal services through technology, transparency and predictability. While Atrium as an enterprise was ultimately unsuccessful, I learned a ton through this experience, and was able to work more closely with clients and attorneys to solve pain points for each group. I was also able to level-up my professional network in a way that would not have been possible at a traditional big law firm by working directly with engineers, operators, product managers and others who did not come from the law firm world. I would encourage others to take some risk and step away from the traditional, comfortable path at some point in their careers and do something different. Not only will you learn more this way, you will meet folks you would not have otherwise met, from different backgrounds and experiences, and as a result, you may find yourself more fulfilled in your job.

None of us are able to achieve success without some help along the way. Is there a particular person or mentor to whom you are grateful who helped get you to where you are? Can you share a story about that?

I can name three from my experience as an associate at big law firms: (1) Peter Buckland, who taught me that clients value practicality above all else. Clients pay lawyers to solve problems and get things done, after all. (2) Daniel Zimmermann, probably the nicest person I know, who taught me although being a lawyer can be stressful, you don’t have to act like a jerk and everyone in all levels of the organization should be treated with the same level of respect and kindness. (3) Murray Indick, who taught me the value of thinking like a business person, not just a lawyer, and the value of building and maintaining a professional network.

You have been blessed with great success in a career path that many have attempted, but eventually gave up on. Do you have any words of advice for others who may want to embark on this career path but are afraid of the prospect of failure?

I would encourage law students with an interest in a technology company practice to think about how they can differentiate themselves through academic writing, work experience, course work or otherwise. Try to make your passion your work. The nice thing about the practice of law is there are many different kinds of lawyers, and even within those types of lawyers, there are subsets focused on particular industry verticals. For example, if you are interested in intellectual property law and robotics, try to position yourself as the robotics IP lawyer. Take the relevant courses. Intern at a robotics company. Write academic papers of interest to those in that community.

Ok, thank you for that. Let’s now jump to the main part of our discussion. Can you share a story with us about your most successful Angel or VC investment? Or an investment that you are most proud of? What was its lesson?

I am a relatively new angel investor, so I have not had a great success or failure yet. I have investments in a few seed stage FinTech, Legal Tech and mobility startups. I have worked with numerous startups from incorporation through angel funding, venture capital funding and exit — I am most proud of those relationships.

Can you share a story of an Angel or VC funding failure of yours? What was its lesson?

Atrium had a fast rise and equal fast fall. I have several lessons from that experience, notably focus product development on one or two crown jewels as opposed to many different features.

Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?

There have been some in-house legal opportunities that I have turned down where the company was subsequently acquired for hundreds of millions of dollars. The decision may be regrettable from a financial perspective, but overall, I enjoy working at a law firm with many different clients as opposed to just having one client, so the decision does not keep me up at night.

Super. Here is the main question of this interview. Let’s imagine that a young founder comes to you and asks your advice about whether Venture Capital or Bootstrapping is best for them? What would you advise them? Can you kindly share “5 things a founder should look at to determine if fundraising or bootstrapping is the right choice”? If you can, please share a story or example for each.

1. Why? Stop and ask yourself why you need to raise outside capital. Sometimes it is obvious, like when a company will be pre-revenue for a long period of time but significant capital is required for product development. Other times, less so. Many founders think of fundraising itself as a goal. The goal is really executing on your business plan and product vision.
2. Outside Money = Great Expectations. Venture capital is not passive. It comes with expectations of achieving certain goals and metrics. You should understand what those expectations are and whether the metrics your investors expect are achievable. If you are not in a position to reasonably meet those expectations, you are probably better off bootstrapping and raising money from a position of strength.
3. Growth vs. Unit Economics. Up until about fall of 2019, investors were willing to overlook strong unit economics for companies with compelling growth stories. The mantra in Silicon Valley had long been growth at all costs, whether revenue, users, customers, employee headcount, etc. And fundamental business metrics were ignored or pushed down the road. Over the last couple years, investors have a renewed focus on unit economics. If you are going to raise, consider whether your unit economics support your valuation, otherwise, you might consider bootstrapping until they do.
4. Measured Capital. You don’t need to raise hundreds of millions of dollars to be successful. Some of the most successful exits for companies I have worked with have been companies that raised $5M — $30M in venture capital. Remember, the more money you raise, the greater the liquidation preference held by investors, which can make generating a return for common stock holders (founders, employees) difficult.
5. Alternatives. Before you take venture capital, consider what other options might be available that work for your business. Do you have friends and family that are willing to financially support your enterprise? Crowdfunding has also recently become a more attractive option, with the ceiling on Regulation CF offerings increasing from $1M to $5M.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

One thing the rest of the corporate world could adopt which has a long-standing history at law firms, is a commitment to pro bono service. At most big law firms, it is second nature to dedicate meaningful hours each year to supporting pro bono causes. I have spent a lot of time working with immigration clinics and with non-profits. I think the rest of the corporate world should adopt the same commitment, and go as far as require employees to spend time supporting worthy causes.

We are very blessed that a lot of amazing founders and social impact organizations read this column. Is there a person in the world with whom you’d like to have a private breakfast or lunch, and why? He or she might just see this. :-)

I would say Stéphane Bancel, CEO of Moderna. I think the COVID-19 vaccines are one of the greatest developments in modern history and would love to learn the inside story on their development.

How can our readers further follow your work online?

You can find my bio here: https://www.crowell.com/Professionals/Jon-OConnell. You can also reach me at JOConnell@crowell.com. We will be launching a startup focused microsite soon so stay tuned for that.

Thank you so much for this. This was very inspirational, and we wish you only continued success and good health!