Special Contribution by Evisio
Every startup in the world has one thing in common: a dream. From humble beginnings in a basement or garage, entrepreneurs set out to build the next big thing. It’s a tale as old as time and has always been part of the American dream.
For most entrepreneurs, there’s inevitably one major obstacle blocking the path to making this a reality – funding. No matter how great the offering is, growing a business without money is hard. But how far are you willing to go to make it a reality?
One Austin man is betting the house on his success – literally. Michael Ramirez, the founder of SEO technology company Evisio.co, has decided to forgo the traditional route of seeking funding from venture capitalists. Instead, he has listed his home on the market to secure the cash he needs to scale his business.
Rather than sacrificing equity in the company he has painstakingly built from the ground up with outside investments, Ramirez decided to grow his startup via “bootstrapping” (i.e., pulling yourself up by your bootstraps).
While venture capital, or VC, tends to get a lot of attention, largely thanks to the success of companies like DoorDash, Airbnb and Uber, many founders are unaware there are non-traditional ways to fund their startups.
Before we provide some alternative methods for VC funding, let’s take a closer look at the traditional role VC has played, the recent impact events have had on the field, and discuss other ways entrepreneurs like Ramirez are finding ways to finance their startups – without giving up a chunk of their business.
What is Venture Capital?
Venture capital is a form of private financing in which an investor, investment bank, or other financial institution puts capital into a startup or small business in exchange for a piece of equity. This investment can come in many forms, including operational capital, technical expertise, or management experience.
In many cases, VC is used as a short-term investment, where investors provide cash for startups to grow and build infrastructure and then exit once the company has reached a position where it can be sold to a corporation or receive equity in institutional public-equity markets.
While shows like Shark Tank and movies like The Social Network have reaffirmed the romantic image of a group of unknown entrepreneurs taking their business from the basement to the peaks of Silicon Valley remains, in reality, less than 1% of startups receive outside investment capital.
What has led to this more cautious approach? And what does it mean for aspiring business magnates? Let’s find out.
The State of VC Investments in 2023
On Friday, March 10, 2023, one of the world’s most prominent VC institutions, Silicon Valley Bank, fell victim to panic, resulting in the third-biggest bank failure in United States history. It was a problem that caught many investors off guard – but it shouldn’t have.
Investopedia estimated 97% of the bank’s deposits were not federally insured, which was particularly problematic for the tech sector, which has been hard hit by the aggressive rise of interest rates in an attempt to offset inflation.
The total damage of the fallout remains to be seen. Still, the highly interconnected nature of VC could lead to far-reaching concerns for both investors and the companies they have invested in, including the risk of companies being unable to pay employees or investors being unable to secure funds.
As a result, it seems likely that VCs will become less risk-tolerant, which means startups will find it more challenging to secure funding as VC investors become more selective.
This is far from the only issue with using VC to fund business growth. The field is also a largely insular community. According to a study by Richard Kerby, more than 80% of U.S. venture capitalists are men, and 70% are white. The study also indicates that nearly half of all VC investors studied at either Harvard or Stanford.
This has had the unintended consequence of creating what is known as “pattern matching,” in which investors make decisions about future investments based on past experiences.
In other words, because VC has typically included a lack of diversity in race, gender, and alma mater, it has created a cycle where white men from top universities continue to dominate the field.
This landscape makes it challenging for founders to secure funding and successfully scale once it has been secured. That’s why some entrepreneurs are thinking outside the box when it comes to financing their businesses.
Why a Local Entrepreneur is Selling His Austin Home to Bootstrap His Startup
Many founders are looking for ways to avoid the VC model and instead are seeking ways to bootstrap their startups, which is considered one of the safest and healthiest ways to scale. The primary means of accomplishing this depends on either the business generating enough revenue to fuel its growth or the founders successfully securing another type of investment, either from their assets, via their friends and family, or finding another traditional source of capital like a bank.
But there’s the issue – most people don’t inherit a fortune from a distant uncle, win the lottery or have some other source of behind-the-scenes funding. Solving this problem requires outside-the-box thinking to find nontraditional ways to secure financing – exactly what Evisio’s Michael Ramirez has done.
A self-described “serial entrepreneur,” Ramirez was not born into the lap of luxury. Growing up in inner-city San Antonio, he saw his share of financial and social struggles and made it his mission to change his family’s economic status.
“Despite our economic hardships, my parents taught me how to be resourceful, fight through tough times and see opportunities where others don’t,” he said. ”For example, when I was laid off from my first job out of college, I asked one of the company’s owners if he’d hire me as a contractor. Most people wouldn’t think to do that, let alone have the guts to ask.”
His hustle mindset led him to move to Austin, where he graduated from The University of Texas at Austin, started his marketing agency, became an SXSW speaker, and now bootstrapped his own marketing Saas company in Evisio.co.
“Starting with my SEO agency (which I still operate), I was constantly seeking ways to streamline the process of getting webpages to the top of Google rankings,” Ramirez said.”That’s when an idea struck me like a thunderbolt, and Evisio was born.”
A platform designed to streamline every aspect of search engine optimization and improve results, it’s suitable for every level of SEO expertise, from old pros to absolute novices. Ramirez was immediately confident this was a winning idea.
“But that brought me back to the funding problem,” he said. “I first wanted to prove the concept before taking on debt and giving away a lot of equity. But I didn’t have the cash to fund it myself, and unfortunately, my family is not independently wealthy. So, I had to get creative.”
This didn’t happen by chance, however. Ramirez worked multiple jobs to save money as he researched properties in Austin that would make a good investment. He then used his savings to build the first MVP (most viable product) and update the home. Once satisfied that he had improved the house’s value, he listed it on the market with the idea of using the proceeds to scale this venture.
“Is it risky? Sure. But if I’m not willing to go all in for this, why should I expect anyone else to?,” he said. “But by the way, if you know anyone looking for a beautiful 4-bedroom, 3-bath home in the heart of South Austin, send them my way,” he added with a smile.
Why Some Entrepreneurs Don’t Want VC
Despite making the headlines, most startups aren’t using venture capital. In some cases, this is because of shaky business models or over-saturated markets that make a business unappealing to investors. In others, it’s a conscious choice.
Some of the more common reasons why founders may choose not to seek VC include:
- A loss of control – By surrendering equity to investors, founders can lose a portion of control over where their business is headed. Venture capitalists are not usually silent partners, which means they will have a share in how the business grows.
- Forced timelines – Rapid scaling is not something every business is suited to, but the clock starts ticking when an entrepreneur accepts money from VC investors.
- Unnecessary distractions – Securing VC funding takes a lot of time and energy. This can take you away from other equally important tasks during the crucial first two years of a business’ life.
- A poor fit – Things like geographical limitations, scalability issues, and the need for physical inventory can make VC a poor fit, particularly for companies not in the tech world.
So, how do the 99% of startups that fall outside the realm of VC investors grow? By bootstrapping, of course.
Alternatives to Venture Capital
Entrepreneurs will go to extreme lengths to fund their dreams and retain company equity. But not everyone is a gambler. Some people are naturally more risk-averse. Luckily there are still lots of funding opportunities – without sacrificing control.
Here are some ideas for financing your business:
- Selling assets – You don’t have to sell your house to fund your company as Ramirez did, but if you have other assets you don’t mind parting with, this is a route to consider. This could be anything from the mint condition Mickey Mantle rookie card your dad left you, your summer home, or your stock in Microsoft. Just remember you’re gambling on yourself here.
- Government loans – While the U.S. Small Business Administration (SBA) only makes direct loans to help businesses recover from declared disasters, it does back loans designed to help small businesses get the needed funding.
- Government grants – The SBA provides limited grants to small businesses and federal funding to states and eligible communities to promote entrepreneurship.
- Programs for minorities – With a commitment to supporting the development of minority-owned businesses, the SBA has funding and resources earmarked for businesses owned and operated by African Americans, Asian Americans, Hasidic Jews, Hispanic Americans, Native Americans, and Pacific Islanders.
- Incubators – Business incubators provide specialized programs to help new entrepreneurs learn and grow their businesses. These come in many forms, including academic institutions, nonprofits, and for-profit property development companies. These programs do not generally directly provide funding, but they can point you in the right direction.
- Bank loans – Most banks offer small business loans and financing to provide startups with a cash infusion. However, many business owners have found approval challenging, as traditional banks are unwilling to issue high-risk loans.
VC is Not for Everyone
Venture capital funding can be a godsend for certain companies. Companies we know and love, like Facebook, Amazon, and Apple, were all backed by VC. But it’s not the right choice for every business. In his book Lost and Founder, author and entrepreneur Rand Fishkin provide honest advice about when a startup should consider taking VC money based on his experience building Moz.com.
With the constant threat of a recession looming, investors are taking a more careful approach to startups, which may lead to some businesses being left out in the cold.
Luckily, there are options. Work through yours and make a careful decision about your next steps. Ramirez does not doubt that selling my house will provide returns many times over. But if you’re not as bold as he is, there are still many sources of funding you can employ.