The Rise Of Bootstrapped Startups

At the heart of Europe’s bustling tech scene, a quiet revolution is unfolding. While venture capital-backed startups grab the headlines with massive funding rounds, a new breed of company is emerging as the true backbone of the continent’s innovation ecosystem: startups. In an exclusive interview with the CEO of a leading boutique M&A technology advisory specializing in small- and mid-cap transactions, he shares insights on how from his experience these self-funded businesses are proving that sustainable growth, profitability and innovation can to keep up. they often outperform their VC-backed counterparts in the long run.

The numbers game

On the surface, European venture capital appears to be thriving. According to Dealroom, European startups raised a record €100 billion in 2021 and although it fell to €63 billion in 2023this number would have seemed unthinkable just a few years ago. However, beneath this shiny facade lies a more complex and troubling reality, especially for scaleups.

“We have so many clients come to us who have built large companies with revenue ranges of two, three million i,” he reveals Stefan KöpplCEO of Samira Advisorsa leading M&A technology advisory boutique. “But they burned many millions down the road in VC money because from the beginning they were used to, ‘Okay, my investors are going to pay me anyway.’

This scenario, repeated in countless startups, points to a fundamental issue: the misalignment between VC funding models and the natural growth trajectories of most businesses.

While venture capital is the perfect financing method for a certain subset of high-growth companies in fast-growing markets, many companies in more conservative environments would be better suited to raise capital more efficiently and/or finance their growth with different financial instruments.

The Power of Bootstrapping

“We are seeing an increase in highly successful bootstrapped companies across Europe,” Köppl begins. “These companies are building sustainable businesses with real revenue and profits in a highly capital-efficient manner, often outperforming VC-backed startups in terms of long-term sustainability.”

While venture capital remains an important part of the ecosystem, Köppl argues that the success of bootstrapped companies challenges the idea that huge rounds of funding are necessary for startup success. “We have been working with dozens of companies that have reached 5-10 million euros in annual recurring revenue with teams of 20-30 employees. They are often profitable from day one and are in complete control of their destiny and the pace at which they achieve it.”

A tale of two approaches

Köppl shares an illuminating example that highlights the potential of bootstrapped companies:

“We recently worked with a bootstrapped software company. They started in a garage five years ago and had grown to double-digit million in annual recurring revenue with just 28 employees. They were profitable in the sixth month and had complete control of the product roadmap and the company their culture When they decided to explore acquisition options, they had seven serious bidders and eventually sold for 8x revenue, a multiple that many VC-backed companies struggle to pay, but even more so for how they perceive the buyer to fit their company , also in cultural terms”.

This success story stands in stark contrast to some VC-backed companies that struggle to find exits despite raising significant capital. Köppl points out, “How many truly large strategic M&As happen in Europe annually, over 200 million? Very few. And when they do, the terms are often unfavorable to the founders due to complex cap matrixes and liquidation preferences.”

The Advantages of Bootstrapping

According to Köppl, bootstrapped companies enjoy several key advantages:

1. Focus on revenue: “When you’re bootstrapped, every euro counts. These companies are laser-focused on what really adds value for customers. They operate under the motto: You can only eat what you kill.”
2. Effective Operations: “Limited resources encourage creativity and efficiency. I’ve seen bootstrapped startups outperform well-funded competitors simply because they’ve optimized every aspect of their operations.”
3. Customer-centric Approach: “Without the pressure to achieve overgrowth, bootstrapped startups can focus on delivering real value to customers. Their entire roadmap is driven by customer needs, not investor expectations.”
4. Flexibility: “I’ve seen bootstrapped companies reinvent themselves in a matter of weeks to take advantage of new opportunities. That kind of flexibility is much harder when you have a board to convince.”
5. Attractive to Acquirers: “When considering acquisition targets, bootstrapped companies often have cleaner financials, more rational valuations and a proven ability to operate efficiently. It makes the due diligence process smoother and increases the likelihood of a successful integration.”

The Human Factor

Beyond the financial benefits, Köppl notes that bootstrapping often leads to a healthier work environment for founders and employees alike. “Founders who build sustainable bootstrapped companies often end up much happier,” he notes. “They’re building on their own terms, without the constant pressure to raise the next round. Top tier VCs have already recognized this and are shunning founders who aren’t really ready for this game.

This approach also allows a more diverse range of startups to flourish. Köppl explains, “Not every great idea needs to be a potential unicorn. Bootstrapping allows entrepreneurs to build valuable businesses in niche markets that may be overlooked by VC funds. We’re seeing incredible innovation in areas like vertical SaaS, which are dominated by with bootstrapped niche industries’.

Challenges and Solutions

While bootstrapping offers many advantages, Köppl acknowledges that it is not without its challenges. Limited resources can slow growth, and some industries require significant initial capital that self-financing cannot provide. However, he points out that innovative solutions are emerging:

1. Revenue-based financing: “We’re seeing new financial products that allow companies to access growth capital based on their revenue rather than equity. It allows these companies to accelerate growth without giving up control.”
2. Angel Syndicates: “Smaller investments from groups of angel investors can provide capital without the strings attached to VC funding. It’s a way for successful entrepreneurs to support the next generation without the overhead of a formal VC fund.”
3. Strategic Partnerships: “One of our clients, a bootstrapped AI company, entered into a partnership with a major automotive company. It gave them access to data and resources that would have been impossible to obtain otherwise, accelerating their growth without dilution.”

The Role of Public Support

While private capital plays a critical role, Köppl notes that public initiatives are also evolving to support a more diverse startup ecosystem. “It is true that there is still a strong need to boost venture capital in Europe, especially in some regions and at the growth stage.” observes. “But at the same time, there is a growing recognition that supporting viable non-startup companies can have a significant positive impact on the economy.”

He mentions several promising initiatives:

1. Grants for R&D: “Non-dilutive funding for innovative projects allows companies to invest in technology without giving up equity.”
2. Tax incentives: “Policies that reward companies for reinvesting their profits in growth and job creation are particularly beneficial for the companies involved.”
3. Public-private partnerships: “Programs that connect bootstrapped startups with larger companies for mentorship and potential business opportunities create valuable synergies.”

Stefan emphasizes that public support plays a critical role in venture capital, but is not always perfectly aligned with market needs. For example, there is a lot of capital available for early-stage VC funds, despite the fact that some regional markets already have sufficient liquidity in this sector. The real challenge, he notes, seems to be more in the financing of the development stage than the seed stage. The road ahead

As Europe’s tech ecosystem matures, Köppl believes the importance of bootstrapped companies will increase. “The future of European innovation lies in a diverse ecosystem that celebrates different paths to success,” he concludes. “Boottrapped companies show us that it’s possible to build world-class businesses without following the traditional VC playbook.”

Köppl emphasizes that there is room for both models in the ecosystem. “VC funding is vital for certain types of businesses, but it is more of a niche product than is often realized at the moment. We need to recognize and celebrate the unsung companies that are often the unsung heroes of European tech “.

As policymakers, investors and entrepreneurs look to the future, Köppl argues that embracing and supporting bootstrapped startups will be key to building a sustainable and innovative European tech sector. By celebrating these hidden champions and giving them the resources and recognition they deserve, Europe can nurture a new generation of technology leaders who compete on the world stage, staying true to their roots.

The message from Köppl’s insights is clear: in the world of European technology, sometimes less external capital means more innovation, more sustainability and, ultimately, more success. As the continent continues to establish itself as a global tech powerhouse, it’s the young startups that can lead the way, proving that with determination, creativity and a focus on customer value, European entrepreneurs can build companies that change the world with their conditions.