Where to Invest
Bijal, a colleague at Netcore, pointed me to a question asked on Twitter by Paras Chopra (founder of Wingify): “If you were the founder of a bootstrapped company with enough money to invest into business, how would you invest it such that your VC funded competitors will not be able to do replicate?” Bijal wanted to know my views on the question.
My initial reaction was: “Business is not like physics or maths! Answers differ for everyone, and every business. Every company has to make its own choice. Some can invest in new experiments, some in buyback, some in acquisitions… And at times you have to just save for a rainy day also — like a Covid-type situation.” And as Paras clarified: “The point is to do something different that turns out to be valuable.”
I then read some of the replies on the Tweet thread:
- There isn’t that much difference between money, but I guess one big difference is that bootstrapped companies can diversify more? VC money is typically used to double down on what you already have.
- This means the investment will have to be something VCs would never sign off on. Maybe a second profit center, or a community
- Be insanely patient and think in years/decades and not days/weeks/months. Most VC funded competitors are not encouraged nor incentivized to think in years.
- Invest in things that money cannot quickly scale. Like a good SEO based strategy. A good white hat campaign cannot be replicated with VC money, while Ads can scale, Sales can be scaled. Eg: Canva, Freshbooks
- Investing in experiments in markets where there is no consensus about “massiveness of the market”. Ex – 40+ internet users in India, teens in India, pet owners in India, home gardening in India etc. VC’s never invest without conviction on market size.
- Find the right people for the right Hard to compete in Money, but can make a difference in choosing people.
- I wouldn’t worry about VC funded competitors. I would focus on the founders, their vision, the problem and the market and will decide based on that and will try to help the founders to succeed.
- Sharp focus on capital allocation…and hence prioritise on what enhances the moat around your business. Capital allocation is a skill that founders of bootstrapped companies need to acquire/get help with vs VC funded competition.
- Do things where capital isn’t the primary moat / irrespective of capital that aspect takes time to build. Some egs : in B2C -> SEO, in B2B -> strong founder level relationships with the largest clients (assuming capital = strong tech)
- Chase profits and growth at the same time, not just growth singularly. That’s a lot more valuable than just burning truckloads of cash and then raising more and more to sustain/further grow the biz
- Invest in companies in adjacent domains which help you create a MOAT to keep and protect your business forever.
Interesting answers. As I thought more about the question, I came to another conclusion. In today’s world, growth and scale are both important. A single company cannot solve every problem. There will always be startups doing interesting things faster than a larger company can. What a profitable company can do is to do an IPO and get listed on the exchanges – because this does two things. First, it provides currency for acquisitions. Second, it provides liquidity to employees. Both are critical for the proficorn to maintain an edge. Private companies end up having to pay in cash for acquisitions if no benchmark valuation has been set.
So, as a bootstrapped company, the aim should be to achieve scale to do a listing which then provides the capital and currency for accelerating growth via acquisitions (and also bringing on more talent). There will always be many startups (VC-funded or bootstrapped) who will be looking for an exit. Acquiring and integrating them rapidly can provide a powerful playbook for even more profitable growth.
Tomorrow: Part 64