Insanity? Why A Bootstrap Entrepreneur Raised $17 Million in Venture Funding

About This Blog

This site is for  entrepreneurs.  A full RSS feed to the articles is available.  Please subscribe so we know you're out there.  If you need more convincing, learn more about the site.



And, you can find me on Google+

Connect on Twitter

Get Articles By Email

Your email:


Blog Navigator

Navigate By : 
[Article Index]

Questions about startups?

If you have questions about startups, you can find me and a bunch of other startup fanatics on the free Q&A website:

Subscribe to Updates


30,000+ subscribers can't all be wrong.  Subscribe to the RSS feed.

Follow me on LinkedIn


Current Articles | RSS Feed RSS Feed

Insanity? Why A Bootstrap Entrepreneur Raised $17 Million in Venture Funding


If you've been following for any period of time, you likely know that I'm not a big advocate of startup founders going out and trying to raise venture funding in the early stages.

My argument boils down to two things:

1) Most folks don't need venture funding in the early stages

2) the odds of first-time entrepreneurs actually raising VC is pretty low.

Oh, and 3) it's one of the least fun activities an entrepreneur can take. Raising funding is often harder than building a product/business -- and much less fun!

So, given my general disposition, it will come as a surprise to many that know me that my startup, HubSpot, announced today that it has closed a Series B round of funding of $12 million. This is in addition to the $5 million Series A funding we raised less than a year ago. So, the total capital raised is now over $17 million. The news was big enough that TechCrunch wrote about HubSpot today.

So, back to the question. Why would a seemingly reasonable and modestly successful bootstrap entrepreneur raise venture funding of this magnitude?

Insanity? Maybe...

How A Bootstrap Entrepreneur Winds Up Raising $17 Million In Venture Funding

1. I seed funded HubSpot with $500,000. To do this, I used some of the proceeds from the sale of my prior startup (which I had bootstrapped with $10,000). The seed funding was an easy decision, because I mostly had to convince myself, and I'm pretty convincing when I talk to myself.

2. The seed funding was enough to build our SaaS product for internet marketing and get it out into the market (i.e. start charging real companies real money to use to it). People bought it. Sure, the product was "pre-alpha" and crappy, but it was useful. We also improved it every day (literally) so it got less and less crappy over time. More and more people bought. This gave us some evidence that there was actually some sort of market demand out there. Interesting.

3. The fact that things were headed in the right direction led us to raise another $1 million in angel funding. For us, that was a fair amount of money (we're capital efficient). Raising the angel funding was reasonably efficient because we had the inside track. The fact we had paying customers was helpful. So, no we're up to $1.5 million in capital raised. Cash in the bank. Life is good.

4. Then, the VC community starts to get interested in HubSpot (this is weeks after we have our angel funding finalized). "Not really interested," we say. We've got a $1 million of fresh cash in the bank. We don't need VC money. As it turns out, one of the best times to raise venture funding is when you don't need the money.

5. My co-founder, Brian Halligan and I have lots of interesting discussion and debate. We'd both debated the whole VC thing while grad students at MIT (where we met). For HubSpot, we had confidence that the market opportunity was big enough to warrant venture-funding, we just didn't think we needed it quite yet. (This is June-ish of 2007). But, we knew we were on to a potentially really big idea. We'd both made some money and weren't really looking for a "modest outcome". We wanted a big, significaint, immodest outcome. So, on the VC front, we figured with the right set of terms and the right partner, we'd consider raising it sooner rather than later. We got the right set of terms and the right partner. So, we raised another $4 million in VC bringing our "Series A" to $5 million. We're off to the races.

6. We did what I think is the best possible thing a startup can do with lots of cash: Not spend it too quickly. No advertising, no marketing, no high-flying salaries for high-flying executives. We hired the smartest, most passionate people we could find. People we knew and respected immensely. People fanatically focused on building a real business and who were constitutionally incapable of spending money willy-nilly. We behaved a lot like we were spending our own money. Because, we were. [Note to self: Write a future article about why VC money is as much yours, once you've given up the equity to get it].

7. Life is good. Sales are ramping steadily. Every month is a record month. Not in terms of visitors, eyeballs or some other proxy for future revenues, but in terms of actual revenues. The business is growing fast. By the time we officially launch the product in November, 2007, we have 100+ paying customers.

8. As it turns out, success attracts more capital. We started getting some "pre-emptive" interest in the company from VCs. "We don't need more money right now," we say. We hadn't even spent half of the last round and lots of cash in the bank. But, we're practical guys and willing to listen. As it turns out, one of the best times to raise venture funding is when you don't need the cash... (see point #4 above).

Fast-forward to today: We've closed a $12 million Series B round.

But, seriously, why did I raise VC funding? Did I change my mind?

The simple answer is no, I have not changed my mind on VC. I still don't think most early-stage entrepreneurs should go out on the venture fund-raising circuit. They should maintain the option of a modest exit. Focus on solving the customer's problem (not the VC's problem). My situation with HubSpot was special. I had already done the bootstrap thing (multiple times) and made money. I had above average odds of raising money for HubSpot.

So, why did I raise funding? Because, this time around I wanted to take a shot at the big leagues. Sure, any success (even a modest one) is nice. But a modest success is not going to change my life much at this point. I want to swing hard. It's not about the money. It's about the fun and excitement of pursuing a really big idea, working with really smart people and doing what I love. [And, of course, the money won't hurt either]

And that, my friends, is why I raised $17 million in venture funding.

If you have questions, feel free to ask them. I'll do my best (within reason) to answer them. Otherwise, I'll keep you posted with future articles as things progress.

Posted by Dharmesh Shah on Fri, May 16, 2008


I don't usually take the time to write this but that was a really interesting read. I'm not sure why but perhaps because it was personal.

posted on Friday, May 16, 2008 at 4:01 AM by Scott Middleton

Congrats! That was... insightful.

posted on Friday, May 16, 2008 at 6:49 AM by anshul

You mentioned using some of your funding to hire people, and I find it interesting that you didn't burn through all of it right away (I would think that's an exception rather than the norm).
I'd be interested in hearing your take on an article by Joel Spolsky about organic growth, which basically states that any startup needs to grow evenly in revenue, headcount, PR and quality. Is it possible to continue "growing organically" even with the influx of funds?

posted on Friday, May 16, 2008 at 7:40 AM by Barrett

I'm curious about one thing: why $12 million? Did you have a business plan stating that you need that amount? Or is that what a VC offered on their own? Do you have a plan how to spend all that money?
That's nearly three times what you spent so far, which means that you'll either go for three times as long as until now with no significant revenue, or that you'll suddenly grow three times as large as you are now -- and if so I'm curious what will all the new people do.
But I'm mostly curious what was first, the chicken or the egg? I.e. did you plan for having less cash and now you adapt to the new abundance, or you had a plan for this possibility from day one?

posted on Friday, May 16, 2008 at 9:26 AM by Berislav Lopac

Berislva: It's a little of both. The good news is that we had a business model that was already scaling (and a nice easy number to track -- monthly recurring revenue).
The original plan was to raise enough to fuel growth without going crazy -- but give us a chance at capitalizing on the market opportunity. It's a reasonably practical plan.
We decided to build some buffer in because things invariably don't go the way you want them to, and we'd like to not have to worry about capital for a while.
Finally, VCs often solve for owning a certain minimal percentage (in order for the deal to be interesting for them). So, the amount raised often is influenced by that.
Overall, we're not planning anything crazy in terms of head-count growth. Lots of work to do, and lots of room for innovation. We're just going to toil away and try our best to build a significant company.

posted on Friday, May 16, 2008 at 9:30 AM by

Congratulations!!! I agree that it's wise to accept VC money if VCs are knocking on your door and there is plenty of room for faster growth with that additional money.
You probably didn't have to explain yourself so much when you say that you are not too fond of raising VC money until now. The first thing people will ask you going forward is, "but then why did you raise money?" :-P

posted on Friday, May 16, 2008 at 10:56 AM by Bhavana

Congrats and thanks for the insightful article Dharmesh. As a member of a startup looking to raise VC money in near future, it's great to read about your experience and get a sense of what to expect.

posted on Friday, May 16, 2008 at 10:56 AM by Benedict

Congrats Dharmesh! I have a question on how much equity to give away during your seed round. I am currently closing on our first round, originally asked for $750,000, but have been offered up to $1.75m by various sources. Should I take in the full amount even though it gives away 30% of the company?

posted on Friday, May 16, 2008 at 12:14 PM by Eric

Eric: There's no quick easy answer to this, but one thing that might be useful to know: The pre-money valuation is often high correlated to the amount of capital being raised.
So, if you were going to give up X% equity when raising $750k, you would likely not be giving up 2X% when raising $1.5MM.
All things being equal, if you're determined to raise a round, raising more than you think you need to get to the next milestone is usually a good idea.

posted on Friday, May 16, 2008 at 12:38 PM by

If only it was that easy for everyone else, but the truth is most people don't have access to the VC world and are not ready if they do. That's why we need a
social deal flow network where everyone has the same access and a standardized electronic process which happens online from anywhere in the world. This would level the playing field and help really great ideas and companys get the funding they need and deserve quickly, and help stimulate the economy.

posted on Friday, May 16, 2008 at 1:03 PM by Ruth E. Hedges

Very good argument! I don't see any contradiction in your fund raising. Learning to walk before running with the big dogs is a good idea that "most" should follow. I'm giving it a try.

posted on Friday, May 16, 2008 at 3:42 PM by TJGodel

congrats dharmesh :) can appreciate the change in perspective as a fellow former-bootstrapper-turned-to-the-vc-raising-dark-side.
out of curiosity, does the extra 12m let you acquire more customers faster (e.g. sales/marketing budget) or are you using it to hire more engineers or...? is it just a really, really long runway? :P

posted on Friday, May 16, 2008 at 6:12 PM by Drew Houston

Congrats, and it totally makes sense from your perspective as you've explained it. I was wondering: how does this affect your exit options? If you've taken $12M in outside capital and the VCs own 30% of the company (total guess, but I'd imagine you got pretty good terms), then that's a post-money valuation of $40M. For a VC to get their 10x return, you'd need to sell or IPO for $400M+. That seems like a lot, though maybe your market justifies that. Were you worried about cutting down possible exit options when you took the VC money?

posted on Friday, May 16, 2008 at 6:58 PM by Jonathan Tang

Thanks for the insights and your thoughts on why you accepted the Series B funding.

posted on Friday, May 16, 2008 at 8:46 PM by Workpost

Drew: The use of proceeds is a combination of runway, hiring some great talent (we have many more ideas than people to execute) and ramping sales/marketing to bring on more customers.
Jonathan: Once you pick the path to take on VC funding, you are to a degree reducing the chances of a modest exit. Having said that, though VCs are shooting for a 10X return on their investment, it doesn't mean that it's required for ever one of their portfolio companies to hit that return. They're smart people and solve based on the situation.

posted on Friday, May 16, 2008 at 9:26 PM by

Hi Dharmesh,
Congratulations on your great news! Thanks for having this site, I have learned many great things from it.
I'm a partner in a business that has huge potential and are in the process of putting an advisory board together and would love to talk to you about this opportunity.
So email me, If your interested in learning more.

posted on Saturday, May 17, 2008 at 7:28 PM by Jay

Congrats Darmesh. Your success story really motivates us. I hope many mISVs will follow your success.

posted on Sunday, May 18, 2008 at 11:44 AM by Iqbal

A free benefit of this funding is the industry attention, backlinks, and vote of confidence that will not be lost on your customers. Congrats!

posted on Sunday, May 18, 2008 at 2:29 PM by Ben Bryant

Wow! Congratulations on the raise and buzz you're building with Hubspot. I've always thought I would bootstrap my company myself. I've never thought about it quite like you have though - sometimes you do need the VC money. It gives you a better chance of hitting the big time and who doesn't want to do that?

posted on Monday, May 19, 2008 at 11:20 AM by Yasmine

Thanks for the post Dharmesh. I have a question concerning your comment that venture capital usually isnt needed for startups. Im my case, I believe I have a great idea for a startup that facilitates the use of closed-networks. However, in order to create the site, there are certain features and services that I would like to incorporate which are beyond the scope of creating a "standard" website. I am not very knowledgeable in web design, but how do you think I could hypothetically create a site similar to Meebo for example, which built around an idea rather than an actual business.

posted on Monday, May 19, 2008 at 11:09 PM by john

Hi Dharmesh. Congratulations! I've been following your blog for the past year. I hope you continue blogging about bootstrapping.

posted on Tuesday, May 20, 2008 at 2:30 PM by Ravi

Congrats , Dharmesh :)

posted on Thursday, May 22, 2008 at 9:13 AM by Waq

Congrats to the team! You never cease to amaze. Can you tell your readers your investor's three principle motivations to invest in Hubspot?

posted on Thursday, May 22, 2008 at 11:44 AM by John Stack

Wow, so refreshing to hear that kind of story when we often hear that some crazy wannabe entrepreneur raised millions of dollars and goes out of cash after few months withiout being able to explain where the cash went...!
Otherwise, I liked the part when you talked about big leagues. I'm an entrepreneur, but I realize I don't aim really high, you know, THE big thing. I'll think about that...
Thanks and congratulations!

posted on Tuesday, June 10, 2008 at 7:53 PM by Stephane Guerin

a good, thoughtful run-through of a startup that went quite well. you probably skipped some of the details of the hard work that went into setting up the business and building a business plan but i am assuming you did it first.

posted on Wednesday, July 09, 2008 at 1:31 PM by hamad

Comments have been closed for this article.