Since the 1960s, venture capitalists have bankrolled Silicon Valley, financing startups that would go on to become the world’s most successful technology companies, including Apple, Cisco and Google.
The money hasn’t stopped flowing. Over the past decade, venture firms poured between $20 billion and $32 billion a year into startups, spawning successes such as Facebook, LinkedIn and Workday.
But those stories are the exceptions. More often than not, venture investments return little if anything to the financiers, with the businesses they back getting tucked into bigger companies or withering altogether.
However, there’s a third class of startups that’s even less frequently discussed. They’re the ones that go it alone or with just the support of friends, family and a few angel investors. Sometimes the venture firms just miss them, and other times the startups shut them out.
When these entrepreneurs succeed, they do so as underdogs. Not only do they lack a financial cushion, they also forego the connections, branding, marketing prowess, publicity and overall stamp of approval that accompany the big bucks from a major venture capital firm. But by going this route, these entrepreneurs keep their ownership, grab control of their own destiny and, perhaps most importantly, gain a real appreciation of money.
Ed Zschau teaches that to students in his high-tech entrepreneurship class at Princeton University, and he’s observed it in the handful of startups he’s backed as an angel.
“Companies that don’t have much money when they start out develop good habits,” said Zschau, who previously worked as a venture capitalist and served four years as a U.S. congressman for California. “They’re able to do a lot more with less.”
Starting next week, Bloomberg.com’s Tech Deals blog will profile five startups that have succeeded without venture capital. Success does not mean becoming a multibillion-dollar public company, but rather having reached a point where the business is thriving or the brand is at least big enough to make VCs deeply regret missing out.
Look for a series of posts that we’re calling, “No VC.”