Three Co-founders Bootstrapped with a Paycheck, Now at Over $50M Revenue: Ganesh Shankar, CEO and Co-Founder of Responsive (Part 5)

Sramana Mitra: Until that million dollar point where you brought in institutional capital, did the three of you fund the company through your own savings?

Ganesh Shankar: Yes, that’s right. I lived in an apartment. None of us had a big bank balance. We had a couple of small investors – friends and family, basically business colleagues, who have seen us how we work. They supported us early on.

Sramana Mitra: You also had this bootstrapping with the paycheck situation, which gives you lots of runway. That’s a very smart strategy to get things off the ground.

Ganesh Shankar: Yes and no. We needed capital for the initial development, and we had a team in India to work on it. That helped a bit. My two other co-founders were on paycheck. The first six months was when we needed the capital. We are truly a customer funded business.

Sramana Mitra: You have maintained discipline in the business. You have managed it in a very disciplined way in more or less the bootstrapped spirit and ethos is how you’ve built the business. When you raised money in 2017, how much did you raise?

Ganesh Shankar: We raised $2 million.

Sramana Mitra: Is that the only money you raised or did you raise afterwards as well?

Ganesh Shankar: That’s a good question. We started getting into enterprise in late 2017. One of those large Fortune 100 customers we were engaging with were questioning the stability of our business. We’d started in 2016-17 and they were wondering, “Can you support this? What does your business continue to look like? What is your contingency plan? What does your audited finance statement look like?”

What audited statement are you talking about? Money comes into my bank account and goes out. That’s when we realized we needed a bigger banner behind us to showcase that this is a viable business.

In 2018, we brought in a private equity firm called K1 to do a minority round in our business. At that time, technically we were not a PE type deal, but K1, who is our partner today, saw the opportunity. The only condition they had was to clean up the cap table. We’d about 11 small investors from the initial round and then nine additional investors. We still hold the record for giving the highest returnin just about 13 months for those early investors in Oregon. We cleaned the entire cap table and gave exit to 11 investors. Now, we have only one investor in the cap table, which is K1. They are minority holders.

We shared a press release with our enterprise customers saying that a private equity firm is our sponsor.

Sramana Mitra: I see. So that was a real issue. You did have a real issue with selling to the enterprises because they were asking for some sort of a guarantee that you would remain afloat.

Ganesh Shankar: Exactly.

Sramana Mitra: All right. What else is interesting in terms of inflection points or strategic moves that you made that are worth discussing in this case study?

Ganesh Shankar: We were very thoughtful about a few things. As an entrepreneur or the CEO of the company, I feel blessed and fortunate to have an amazing co-founding team. That was one of the biggest decisions. We have a very high esteem among us.

Sramana Mitra: You were three co-founders who have worked together before and that is extremely valuable. We get this question all the time, “Can you help us find a co-founder?” I say, “No, we don’t help people find co-founders. YOU need to find co-founders from people you have worked with.”

It’s like you don’t get married without dating somebody. The marriage is going to end in a divorce and being startup co-founders, divorcing your co-founders is very hard.

Ganesh Shankar: I’ve seen the other extreme also, Sramana. Most often, you end up starting companies with close friends and close buddies where you don’t respect each other’s time. You take things for granted. You need to have healthy friction in a good way. You need boundaries. All three of us worked together earlier and were not childhood friends.

Another thing was that there’s no overlapping of talent. I was sales and marketing. Sundar was engineering and Shankar was operations.

Sramana Mitra: You had a complementary skill set.

Ganesh Shankar: The second important aspect in our journey was finding the right co-founding team. The third was not getting carried away. Looking back, did I need a reason to raise $2 million? Probably not. When I talk to up-and-coming entrepreneurs, I often reflect on how I split my time as a CEO into three buckets: fundraising, customer acquisition, and building teams.

Early on, I spent almost 60% of my time on fundraising, even though we had good inbound customers. I didn’t realize the importance of dilutions at that time. About 30-40% of my time was spent on customer acquisition, and 10-20% on team building.

If I had to do it again, I would spend 50% of my time on customer acquisition. I would beg, borrow, or steal to bring in customers because customers bring more customers.

This segment is part 5 in the series : Three Co-founders Bootstrapped with a Paycheck, Now at Over $50M Revenue: Ganesh Shankar, CEO and Co-Founder of Responsive
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