Invisible unicorns: Big companies that started with little or no money | Hacker News Reader

Invisible unicorns: Big companies that started with little or no money

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442 pointsvinnyglennon109 comments

Autodesk. Started with $60,000 put in by the founders. No further investments until the IPO. Current market cap $24 billion.

(Autodesk did have some conversations with VCs, but they were so profitable and growing so fast that by the time the VCs had made an offer, it was ridiculously low. Here's the history of those deals.[1])

[1] https://www.fourmilab.ch/autofile/www/chapter2_32.html

Did not know that! Thanks so much!

>We couldn't believe that this was the best deal obtainable for venture funding of the company, and we were inclined to ask around to see if this was reasonable. But, our Distinguished Financial Advisor informed us that this would constitute ``shopping the deal'' when ``a deal was on the table'' which was right out by the genteel standards of the venture community, and that he could not countenance such unrefined behaviour (notwithstanding the fact that in the real world this kind of collusion is called ``conspiracy in restraint of trade'' and people go to jail for it).

Fun read!

A bunch of capitalists who have norms against competition. Cool.

Read with a critical eye as I, obviously, wasn't present: in this case it seems likely the Financial Advisor screwed up or simply misunderstood the industry. "Shopping the deal" is only anathema if you've signed a term sheet. Many companies receive/solicit multiple term sheets and accept their favorite.

Or perhaps the Financial Advisor was also a friend or advisor to the venture capitalist, hence if they got them a really good deal they would have solid well paid work for the next few years.

While possible this doesn't feel likely to me (not that my feelings have any bearing on what actually happened). It would be a breach of fiduciary duty, or at least compromised advice if the advisor wasn't a fiduciary.

Not to take away anything from the incredible achievements of autodesk, but $60,000 in 1982 was roughly $155,000 today.

That's a non-trivial amount of cash to be able to dump into starting a company.

I agree, though according to Wikipedia 12 people started the company together and contributed the initial sum of money

Really? That's less than the cost for opening most franchises.

I mean, in the context of 'discussion of small entrepreneurs who have started internet companies from scratch'.

You're right that it's a relatively small amount to start any kind of business.

I do think someone mid-career who's something of a subject expert spending $150k teaches us meaningfully different lessons than an inexperienced person whose $150 side project is now a billion company. Not less valuable, just different.

Add to that: working your ass of for pennies for the first year or so...

Sure, but still more than qualifies them for inclusion with the companies listed in the article.

This is gold.

I hope all of HN realizes how valuable it is to have you around....

Solid advice, solve a problem and sell the solution. Remember that two things you can always sell are time and preparation (which is insurance against future time).

To put that in perspective, any product or service that can save time for someone where time is an expense (they pay salaries, or have a limited amount of it to meet deadlines) can evaluate your price against their cost of time and ascertain a direct value to your offering. This will save you 1 hour a day, that is 5 hours a week which can be applied to something else or used to generate other revenues.

Preparation is another aspect of time that is sort of the 'first derivative'. These solutions let you save time in the future by taking future point where you won't have time, and using it now when you don't. Example, frozen meals. Preparation is spent time to make a meal now, so when you need dinner but have no time you can just re-heat this frozen meal). Another example of preparation is a customer management tool (CRM) which captures the previous interactions so that you can quickly scan their history before you interact with them (saving time) because you've captured it during previous interactions.

These kinds of businesses you can start earning money right away on.

The caveat about "selling time" is that the transaction cost of deploying your solution has to beat the amount of time it saves, and you have to make the case for why this is.

The canonical example of this would be a new programming language. Newer, more advanced programming languages can often dramatically increase productivity over existing standards, in an activity that consumes the majority of time (= money) for software companies. The problem is that to realize those productivity gains requires a 1-2 year retraining for every engineer, along with a rebuilding of all the existing tooling & library infrastructure. If you're 20% more productive, you're looking at 5-10 years before break-even, which is usually outside the investment horizons of the average corporate buyer. (Though interestingly, it seems to be roughly the average cycle time between generations of programming languages.)

Isn't this the way companies, until fairly recently, have always been started and grown? Basically, come up with an idea/product, reach around to back pocket (or into your purse) and fund it ad-hoc. That, or take out a loan or such.

It seems like this was the way things were always done - until fairly recently. It seems like things changed sometime around the early 1990s. I tend to wonder if this had anything to do with the S&L scandals and such, plus the recession at the time? I think (maybe I'm wrong) that at that time, banks started to push credit more, and making non-mortgage loans more difficult or impossible to get (I recall my dad getting a loan from the bank to buy a car, with the house as collateral - I don't think that's even possible today).

So today, if you want to take this route, you either have to go old-school and fund it with loans from friends and family (more or less), or find some other kind of small-time investors (non-VC), or use savings, or maybe credit cards or mortgage equity. All have upsides and downsides (for the business, owner, and "investors"). But it isn't as easy any longer to go to a local bank to get a loan to start a business (you'll probably just get pushed to get a business line of credit instead).

I'm probably completely wrong about all of this, though - which is why I don't have my own business, on top of a bunch of other reasons!

The birth of VC as an asset class is generally considered to be in the mid-1940s and created by Harvard Professor George Doriot. The early employees of Fairchild Semiconductor built on the model in the 1960 and helped give birth to Silicon Valley. You're are correct that VC moved into the popular psyche in the 1990s in the run-up to the dot-com boom.

There's a great documentary on Netflix about this titled "Something Ventured."

Sadly not available outside U S A

It is certainly still possible to get loans on collateral. If you have equity in a home then most banks will give you a loan using the home as equity and they don't much care how you intend to use the money. This is what a HELOC is (Home Equity Line of Credit).

The bank gives you a loan that is somewhere less than the amount of equity you have in the home for you to spend as you please. If you don't pay it off they take the house. I know several people who have started their own businesses later in life and used this time of lending to finance their own startup capital.

I'm not surprised that the bank would do this for a car loan for your dad, but I am a bit surprised that it was even needed. Typically when purchasing a vehicle on loan the vehicle you are purchasing serves as it's own collateral.

As you're less likely to crash a house, maybe he could get a better rate?

If you have a decent credit rating then a new car loan will typically have a lower interest rate than a home mortgage. Car manufacturer captive lenders subsidize the rates to increase sales. And most consumers will default on their car loan last because they need the car to get to work. If you're desperate you can always sleep in your car but you can't drive your house.

I think a large part of this is the growth of internet companies, SaaS, ect, compared to the more traditional, we have a product and it costs x dollars, and it cost us very little beyond the cost of human capital to build it.

It simply isn't possible to build a new internet company unless you either have users who are already going to generate revenue from the second you deploy the product, or some amount of financial backing (either personal/familial, or VC based funding). You can't easily put close to 1000 dollars per day of server costs on to a credit card.

Additionally, it's hard to attract skilled developers these days without being already established (and can pay high salaries), or by having the backing of some valued institution (big name VC's/angel investors).

Microsoft is pretty close too. Founded in 1975, issued stock in 1981 (5% to an investor, the rest to founders and employees), IPO in 1986

Source: http://www.techntechie.com/early-investors-in-microsoft-you-...

That's a great one! I tried to avoid companies that were more than a decade or so old, with a couple exceptions like Lynda/Epic.

My concern was that examples like that, or Amazon which only raised $8M, are such crazy outliers and relied on strong timing, amazing founders, and other good fortune, that it made them hard to be approachable. That said—I'll make sure to give MS a headnod in the next revision!

In a sense these are all crazy outliers, regardless of era. This is the essence of survivorship bias.

they didn't even use the money, was a way to get a great advisor on the board.

Microsoft is also interesting for the amount of wealth it created for regular employees via stock...10,000 millionaires in 1986 dollars. [1] I often wonder about how having so many millionaire employees shaped company culture in the late 80's and through the 90's.

[1]: https://www.forbes.com/2010/06/28/microsoft-company-numbers-...

I was only there 1999 to 2013, so I didn't directly experience it, although there were still plenty of "Microsoft Volunteers" when I started.

A friend who was there through much of the 90s used to remark that it was great when the share price was exponential because "the assholes" would leave as soon as they could "call in rich", but the people who loved the job would stay. When the share price went flat, "the assholes" would start gaming the review system.

There was definitely a change from an era in which salary was the smaller part of compensation to an era in which it became the dominant component, it took senior management too long to realize how important this change was

There are also stories of employees wearing pins that said FYIFV as a warning that their tolerance of BS was low

(Fuck You I'm Fully Vested)

+1 to volunteers and FYIFV. Can attest to both of these.

I'm one of the authors of this post and plan on releasing an updated version with some companies that we missed on the first pass. If you know of other substantial startups that went far before raising capital, please let me know: JoeFlaherty@FounderCollective. The current list of misses includes:

+ Grammarly

+ 37 Signals/Basecamp

+ Zip Recruiter

+ Outcome Health

+ Wistia

Who else?

CV Library / Resume Library?

Veeva, funded in 2007 - raised a total of 7m (3m angel, 4m from Emergence Cap).

Now public at close to 9bn market cap.

Huge fans of Veeva! We feature them in another post:

https://techcrunch.com/2016/10/15/overdosing-on-vc-lessons-f...

I tried to keep the focus on companies that went for long stretches before they raised capital, but Veeva raised so little they probably merit inclusion.

Is there a cutoff for length of that stretch? (minimum)

Or minimum revenue before they took outside capital?

Zoho Corporation, founded in 1996 with over 4500 employees - completely bootstrapped and profitable :)

(disclaimer: I work for Zoho)

JetBrains

i'm sure you've seen the interviews on indiehackers.com, but there are many more bootstrapped companies on their way up! many to watch out for.

For sure! IndieHackers is great and I hope to include many of those companies in the future. What we were trying to do was show that you could build big and substantial businesses. Too many people dismiss bootstrapping as a way to build lifestyle businesses when in fact it's a way to build public companies.

In some cases we featured some companies that had $10M+ revenues and extraordinary success in PR (Cards Against Humanity) or found some cool funding method (e.g. Kickstarter and CMON). LMK if there are any IndieHacker interviews you think deserve inclusion.

Thanks!

Craiglist generates tons of cash, wildly profitable, no investment

Bose has always funded itself via profits for 50 years with no outside investment. $3b-$4b revenue last year.

Beats waited 4-5 years and was huge before taking first equity investment from HTC

All good examples! Thanks so much!

Wasn't Beats founded by a celebrity? I feel like this kind of goes against the spirit of the list.

Jimmy Iovine and Dr. Dre.

a fluff doc on them coming out: http://www.npr.org/2017/07/07/535920449/the-story-of-dr-dre-...

a celebrity with very deep pockets.

Recent docu-series "The Defiant Ones" on HBO [1] features the story of Iovine and Dre regarding their partnership on Beats (and beyond).

[1] https://defiantones.com/

AFAIR eBay had an investment in Craigslist. Might be wrong.

They owned at least 25% of the company at one point, but it was well after it started and gained critical mass, or liquidity in this case. My filter for this piece allowed for companies that raised money, but only if they managed to run independently, for a few years at least.

eBay bought a former employee's stock from him; it wasn't an investment. Craigslist later bought back the stock (https://web.archive.org/web/20040813165340/http://www.cnewma...).

Valve

Great call!

Valve was founded by Gabe Newell and Mike Harrington, both of whom had a 7-figure net worths because of MS shares. I'm not sure if it really counts.

That's helpful context, thanks! I think they definitely deserve to be in an update, but that's a pretty important qualifier to call out.

JetBrains?

MathWorks

Skyscanner

Datto, Inc. - First CT unicorn, started in a basement and made it very far before taking VC money: http://www.courant.com/business/hc-datto-startuprecovered-mo...

GitHub

Wolfram Research (Mathematica and Wolfram Alpha) - 700 employees, no outside capital.

Teamwork.com, entirely self funded by two guys who had a web agency and scratched their own itch in PM software, now doing over 100m in annual revenue. They dropped nearly $1m to change domain which they say paid for itself in three months. Now offering free deskspace and mentoring for other startup SAAS

ZipRecruiter was 100% bootstrapped, was profitable, and had 100s of employees before taking VC.

Job Platform ZipRecruiter Takes Its First Outside Funding, $63M Led By IVP https://techcrunch.com/2014/08/26/job-platform-ziprecruiter-...

Disclaimer: I work for ZipRecruiter.

Thanks so much for sharing! I'm one of the authors, we will do a follow up to this soon with more companies.

I think it's interesting that private businesses that self-funded tend to have a different internal organization and different values compared to businesses that took VC money and/or went public.

Outside money seems to demand rigid hierarchy and (not surprisingly) good returns for investors, whereas self-funded businesses tend to prefer a flatter peer-to-peer structure and adherence to whatever values are important to the founders/employees beyond a steady income. That's my impression, anyways.

Certainly not tech related, but Sara Blakely started Spanx with $5000 when she was 27. Her company makes women's underwear. She's worth $1 billion. Pretty good result for someone who used to be a door-to-door salesperson.

Adafruit: $33M revenue is not "earns" $33M. Could be running at a loss for all we know.

Fair enough, but I don't see how they could run a loss on a hardware business for a decade without raising capital. More likely it's got standard ecommerce margins, blended with higher margin from their own product line.

Their margins are high. About 8 times what you would pay for quantity 1 of the component from a Chinese supplier. E.g. 1.8" TFT screen they sell for $29.95 is less than $4 shipped via AliExpress.

However, they do provide a value add in the form of dealing with the Chinese supplier and their knowledgebase. Of course you could buy the same board off of aliexpress and then hit up Adafruit for the documentation (or be a badass and go out on your own) but they provide both the ability to buy just one from a US supplier and decent docs in the same place. Sometimes I value convenience over raw costs.

Most of the time, chinese stuff have documentation in english(where necessary). The only problem is long shipping delays, where i live.

adafruit is not running at a loss, we've always been profitable. we have no loans, no vc, no outside funding in any way, 2017 might be about $50m in revenue or so, we'll see!

It's nice to see attention like this on solid business growth (which is how 99% of the companies on the planet actually do it).

VC is great for certain scenarios but it's easy to forget that anyone can spend money and do the financial engineering dance - it's the opposite examples of self-started slow grind that shows the true successes.

These articles are great, but they really need to focus on useful ratios and free cash flow rather than talking about revenue.

I'm one of the authors and totally agree, the challenge is because these companies bootstrap there is very little information about them. A lot of what we know about VC-backed companies comes from SEC filings, so by remaining closely held a lot of the useful context remains invisible. That said, we're going to keep this story updated and will try to uncover more information.

PlentyOfFish? That was pretty much a one-man operation for most of its history, they got bought for a billion IIRC.

> Wayfair: The home goods e-commerce company was profitable from its first month of operation because they skipped brand advertising and bought up hundreds of domain names that were exact matches for common search terms.

I remember buying a TV stand from TVStands.com about a decade ago.

So, how did they convert all those sites over to wayfair.com without losing a lot of Google link juice?

http://www.businessinsider.com/the-story-behind-wayfair-2014...

I don't know how they paired it down and maintained their google magic, but their sister sites (AllModern, Joss&Main, etc) work pretty seamlessly with Wayfair

I actually had a chance to ask one of the co-founders about this very subject as I was working on a similar, albeit it much smaller, problem.

Their approach: suck it up and take it. Literally, they did almost nothing special and followed standard techniques. The result was a dip in search results and revenue, but that was expected and part of their plan for moving to a single brand.

The Wayfair founders also had made millions on selling their internet services firm to a company called iXL years before - so they had the money to fund the venture.

Good point. There's a bit of a continuum at work here. There's the true "Pull yourself up by the bootstraps" story and some "Friends & Family helped" tales. Even though they made some money, I don't think they invested any more than what would be considered a modest seed—think hundreds of thousands of dollars. Considering how many can't build a big business with tens of millions in funding, they seem worth studying.

Does Wizards of the Coast count? :P

Wizards of the Coast was bootstrapped from a basement.

Curiously, they're now a wholly owned subsidiary of Hasbro, which was also bootstrapped -- in 1923.

TOMS Shoes is another bootstrapped company, though the founder had another company at the time to help the initial funding.

Interesting Tim Ferris interview on the podcast: https://tim.blog/2017/06/28/blake-mycoskie/

Fat Brain Toys was bootstrapped:

https://en.wikipedia.org/wiki/Fat_Brain_Toys

BitTitan had 300ish employees before taking any VC, granted the founder was pretty well off from Microsoft.

WiseTail (LMS) was bootstrapped to 10m/yr I believe.

Atlasssian was bootstrapped for 8 years.

Getting VC funding does not mean you are a success. Most VC funded companies fail. To have a real business, to be a real entrepreneur (not just a power point sales guy), you actually need to make sure income > cost and you need to actually grow the business. Not just fund growth with VC money until it runs out.

Wistia. 10 year-old business. Raised only a seed round and has been profitable & growing many years in a row.

Awesome! Thanks for sharing! Do you know if they've announced any revenue figures? Best I could find was an employee count (83) which is impressive given the $1.4M in funding—clearly they have substantial cash flow if they can support that kind of workforce.

Sorry, no clue. You could hop on the Red line to Kendall and ask! They're only 2 stops away from your Harvard office :)

I left the company when it was around 40 and only know of revenue numbers at that point. Nothing has been announced publicly as far as I know, but it's substantial & comparable to some of the companies on this list.

Indie.vc has a list of large bootstrapped companies at the bottom of their FAQ. Some like ESRI are unicorns and have a near monopoly but have been around for 40 years http://www.indie.vc/faq

Thanks for the pointer!

+ TextNow: https://www.textnow.com/

If you were an engineer from 2117 transported back in time by 100 years (the conceit - just assume this) and decided to get rich here in 2017 by taking the largest breakthrough you can think of from your time which is surely subject to patent protection and can surely work with the mechanics and technology of today, and is simple enough that you are 100.00% sure that you fully understand the mechanics of it and cannot possibly make any mistake, and, further, gives obvious utility so that it's basically impossible to get wrong and market incorrectly, then you would have a 0% chance of raising money and bringing it to market as a startup within 1 year. This is extremely certain. Nobody will give you the money to build your prototype, no matter what you say or show, as though every VC you spoke with were cursed with an inability to engage in abstract thinking or as if it were impossible to find a single VC anywhere in the world who can apply high-school level of physics. Your experience would be as though everyone you spoke with, while they spoke with you, had an 80-point drop in their IQ.

Under these conditions the real invisible unicorns are the ones that simply fail to climb out of this hole: they are the billion-dollar companies that are totally unfundable and simply do not make it past that stage and die.

Here is a Quora link to one of the best ideas I've ever heard in my life and easily the basis for building a $50B+ company. I ran across it as a VC quoted it as something like the "dumbest pitch they ever heard."

https://www.quora.com/What-are-the-best-horror-stories-about...

Actually the exact words were: "the most breathtakingly clueless company I have ever had pitch me (and I am not making this up.)"

This company was seeking $2 million only and clearly outlined a very specific growth plan. It is very easy to see the author's reasoning and the clear path they had for $50B+ as well as the likely reactions of other market participants.

If you are a founder of an invisible unicorn, it is important for you to not subject yourself to this ridicule. Not only will VC's waste your time and drive your company into the ground: they will gloat about it on Quora. The correct approach is to completely ignore them and be and stay invisible.

The seed-stage funding climate is completely broken and lots of great companies and ideas die for this reason; a few manage not to die somehow, as we hear about here.

For every invisible unicorn, there are a lot of premature unicorn deaths.

(Actually for this reason the word "incubator" is an excellent one, as it really is like an incubator of a premature birth of a youngling that will die if exposed to the elements and without intensive care and treatment.)

While I definitely have my issues with David Rose, I am floored that you think this business had a "clear path" to a large business.

They are essentially trying to become a web portal for every service imaginable, but need $2M to build a website to do this? There are just too many red flags. I don't understand what you see here.

By no surprising coincidence, you've written nearly an exact quote from a VC in the alternative universe mentioned in my first paragraph. After the engineer was turned down, another VC happens to say to him:

>[To the engineer from 2117:] While I definitely have my issues with David Rose, I am floored that you think your business has a "clear path" to a large business.

>You are essentially trying to completely replace every single (item) in (industry), but need $2M to build a prototype to do this? There are just too many red flags. I don't understand why you're in my office.

hugs and kisses, swampthinker :)

Note that I have no relationship with David Rose nor the company whose business plan he quoted.

I mean, you can give me the condescending response, or you could answer the question and tell me what I'm missing.

I don't get it. Why should I defend or convince you of a throwaway anonymous business plan of a company that has long-since shuttered that I found on a random quora link?

Instead let's do this exercise.

Close your eyes and imagine clearly (please imagine this very clearly) that an engineer from 2117 transported to 2017 is talking to you, and imagine clearly saying to this person "So you would like to completely replace every single (item) in (industry) with a version of your own design that you have not built but which is better in every way and which everyone will use because it's clearly better, thereby you will completely dominate this very competitive industry that has annual R&D in the tens of billions, but you just need $2M to build a prototype and get started? And we're looking at what you want to build on these couple of pages in front of us, with high-school level physics equations that somehow every single person in this whole industry has never thought of?" Imagine clearly looking at it. And imagine clearly dismissing them.

I want you to close your eyes and imagine this scenario. Imagine it very clearly. Maybe sleep on it and try to imagine it as you're going to sleep.

Even though the premise itself (about time-traveling) is absurd, I think it is very easy for you to imagine behaving exactly as I describe you behaving. It's not far-fetched at all.

Reasoning from imaginary evidence.

yes. powerful technique.

Invisible, indeed. My interest timed out before any such corporation was named. It was kind of interesting watching the layout dynamically rearrange itself over and over.

If this isn't readable on a recent Android phone with a decent net connection then who are these articles for anyway?

Don't know what's wrong with your phone, but it was one of the faster loading sites I've been to in iOS - loaded pretty much instantly with no relayout for me. (iPhone 6s)

Looks fine to me on a galaxy s8+

I could be wrong, but I doubt that "recent" phone would be a referring to anything near a flagship phone's specs. You're what, 8 cores and 4GB ram? They still sell single core phones with less than a gig of ram.

Worked fine for me with a 100$ China phone too

It used to be common knowledge that code written on fast computers would only work well on fast computers, but the current generation of cloud developers has forgotten that. I'm sorry and I share your pain. This site jumped around like crazy rendering on my 1.7Ghz dual core phone with 1GB ram running android lollipop.

One odd thing I have noticed is that desktop builds work fine even when crosscompiled for arm machines with the same specs. There must be some memory management inefficiency in android that causes this. Since people just chuck their devices in the bin every two years, no one seems inclined to fix it. There has been some talk of a universal way to run desktop linux (arm builds, of course) on a android kernel, so I have hope for that.

The page renders absolutely fine even with JS disabled on my iPhone: just vanilla HTML and CSS.

Maybe try disabling JS on your phone. I can't imagine what could have caused the problems you describe on this site; TechCrunch still practices progressive enhancement.

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