Can You Start a Tech Company Without Venture Capital?

By ADRIANA GARDELLA

We just published a case study that highlights the challenges confronting Irrational Design, a tech start-up that is determined to bootstrap. Founded in April by Jared Cosulich and Adam Abrons, the company has introduced three products: a dating Web site, an application that serves as an online suggestion box for businesses and a goal-sharing message board.

Mr. Cosulich believes he and Mr. Abrons will be freer to “try crazy things” without investors on board. But the two also recognize they pay a price. They must gain customer validation of their concepts as quickly as possible, which means releasing products that are still rough around the edges. Despite the challenges, the co-founders believe they can build a company with the potential to be more profitable than a venture-backed start-up.

We asked other business owners what they thought about Irrational Design’s strategy. You can read their thoughts and then share your own in the comments section below. Next week, in a follow-up blog post, we will tell you how things are going at Irrational Design and we will have the co-founders to respond to your comments.

Elizabeth Charnock, chief executive of Cataphora, a software maker that also chose to bootstrap: “When we started Cataphora, an adviser said that, as a bootstrapper, I had to understand that a V.C. would ultimately give someone $20 million to compete with us, which buys an awful lot of market advantage. So you need a ‘secret sauce’ like technology or brilliant guerrilla marketing. In our case, it’s complex, high-value behavior-modeling technology that would require specialized expertise to replicate. Now it’s patent-protected to boot. Irrational Design’s strategy of deploying a few simple applications to see what will gain traction may be risky.”

Nichole Goodyear, chief executive of Brickfish, an online marketing platform: “I’ve built businesses with my own cash and V.C. money. The challenge with bootstrapping by consulting is, somewhere, another team is spending 100 percent of their time on a competing product and benefiting from an experienced board. Instead of $500 a month toward marketing efforts, they’re spending tens of thousands. I recommend a hybrid approach for Irrational Design. With their proven concepts, they can now seek funding to grow and scale the business.”

Guy Hirsch, chief executive of SayHired, a job-candidate screening service: “Irrational Design wrongly correlates freedom of risk-taking with not raising venture capital. From personal experience, bootstrapping forces you to become risk-averse to whatever doesn’t help you prove a core business hypothesis. That’s great at the pre-seed stages, but leaves you almost no room for error down the road and certainly won’t support abnormal growth. There are plenty of investors who let you do crazy things on their dime.”

What do you think?

View this article: http://boss.blogs.nytimes.com/2011/02/16/can-you-start-a-tech-company-without-venture-capital/?partner=rssnyt&emc=rss