Roundforest was founded four years ago, and today counts some 40 million monthly users for its portfolio of shopping-assistance websites that use the startup’s data analysis and predictive analytics technologies to see a curated selection of products tailored to their needs.
The company has 60 employees in Tel Aviv and Jerusalem and boasts revenues in the tens of millions dollars. What it doesn’t have is a single cent of venture capital investment behind it.
And that’s the way co-founders Alon Gamzu and Yonatan Leowidt wanted it from the start, even though both were past 30 when they founded Roundforest and had been working at established tech companies for some time. “We never gave a though to raising money,” said CEO Gamzu.
“We first wanted to create the concept and to see if it worked. We wanted to get confirmation from the market. We stated with just the two of us, built the product and started to see movement . Our time is valuable so we spent it on development, not on discussions about fundraising,” he said.
Venture capital is the lifeblood of the startup industry in Israel and everywhere else in the world. VCs are one of the few classes of investors willing to work in the world of startups, where the rate of failure is high but a success can more than make up for serial flops.
In fact, VC fundraising by Israeli startups has grown rapidly in recent years – to $5.24 billion last year from just $2.4 billion in 2013, according to figures from the IVC Research Center. But not a few startups choose to go it alone, popularly known as “bootstrapping.”
“It’s not unusual that after you raise money quickly, the company finds itself tied to the narrative of the investor – and what’s important to the fund is to get a big return on its investment from a few of its [portfolio] companies,” explained Gamzu. “My vision as an entrepreneur is different. I want to build a company that will have a big impact on the industry and, in our case, to help consumers to make better decisions.”
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There are no figures only the number of bootstrap startups, but the number is probably small and the odds that they will survive, much less success as Roundforest did, are small, They don’t have the same money to develop products and hire the best employees. Often the founders go without paying themselves at all for long periods.
A few global companies have succeeded and even become almost household names. They include MailChimp, founded in 2001 and today counting revenues of $400 million by providing e-newsletters and marketing services. Another is Grammarly, which provides online help with writing. Founded a decade ago, it raised its first $110 million in outside capital only last year.
In Israel, one bootstrap success is Experitest, a provider of quality-assurance tools for mobile that was started in 2009.
Tal Barmeir founded the company after she left Comverse with Guy Arieli, who had just sold his startup TopQ. The two discussed their idea at a café and begn working on it soon afterwards. Engineers looking for the kind of solutions the new company was offering , downloaded a free version and helped improve the product by offering feedback.
A year later Experitest still counted just Barmeir and Arieli as the only staff. They landed the first Israeli customer that year and soon their first overseas customers, who bought the product online “That was a critical junction, in which we learned you can close deal by remote with a meeting, and that’s a lot cheaper,” said Barmeir. ”
BarMeir said she and Arieli met with three VCs after the company had landed three major customers, including Microsoft Israel.
“But after meeting with three major funds, we realized it was a waste of time. All of them gave us the same answer – that tools for developers is a market that’s impossible to make money in because open-source software will win out,” she recalled.
Despite what the VCs said, Barmeir knew they were wrong because the customers kept coming and in 2012 they included the giant UK banks Barclay’s and HSBC. “Suddenly in 2015, we started getting phone calls from those same VCs, but by then we were profitable and we politely told them we weren’t interested,” she said.
One way that many startups pursue the bootstrap route is to offer a service that helps cover the cost of developing their product. That’s the route taken by Cloudinary, which helps developers manage their digital media.
Its history goes back to 2009 when the founders set up a small software house to provide consulting services.
“Through the software house we worked with many startups and helped them develop,” said cofounder and CEO Itai Lahan. “When you develop so many different projects you learn what technology problems are prevalent in the market. We were able to provide a variety of solutions, but again and again we’ve come across a gap when it comes to handling your digital media files. That’s why we set up a relatively fast idea, and so Cloudinary was created with a product developed very quickly.”
At a certain point, Lahan and his partners Tal Lev-Ami and Nadav Soferman came to the conclusion they couldn’t start up a company without VC help. But first they wanted to assure themselves there was a market for their product and as they did revenues were growing quickly.
“That changed our worldview from ‘must-raise’ to ‘how much money do we need, and how much are we getting from revenues,’” Lahan said. “Its the a question that we have been asking for the past six years, and the answer has been we have enough to sustain all the activities we want in the company.”
Within 18 months after Cloudinary was formally established, it had revenues of $1 million, and two years later $10 million. It counts 120 employees. The only contact the company has had with VC is when the U.S. fund Bessemer Venture Partners bought stock from employees. But none of that money went into the company itself.