Today’s edition of Small Bets is a guest post by Hustle Fund friend Will McKelvey, co-founder of Courtyard Ventures, a $1.7 million student-run venture fund at UC Berkeley that invests in pre-seed Cal startups.

A few weeks ago Will attended Camp Hustle – our investor event among the trees in Northern California.

At Camp Hustle, one speaker shared how they took their company from bootstrap to IPO.

Will interviewed the founder after the event, and pulled out some lessons for entrepreneurs weathering the current fundraising environment.

Read on →

I recently caught up with Tim Chen, co-founder + CEO of NerdWallet. We talked about how he bootstrapped his company for years, what he learned once he started raising venture money, and how today’s founders can model his experience.

Tim Chen speaks at Camp Hustle in June 2022.

When Tim founded NerdWallet in 2009, he was trying to solve a seemingly simple problem: comparing credit cards online.

13 years later, the company trades on the NASDAQ and is a hub of personal finance support and education.

But it was a long road to get here.

It took six years for Tim to raise a single venture dollar, by which point NerdWallet was hosting 10 million active users.

Today, VC funding is at its lowest point since 2019. The bear market in public equities has trickled down to venture, and investment in U.S. startups plunged 23% over the last three months.

In other words… founders need to reexamine how they’re building their businesses.  

But this doesn’t mean startups should close up shop. Plenty of successful companies have hustled their way to millions of dollars in revenue (GoPro and GitHub come to mind) without VC support.

To succeed, founders need to master the art of bootstrapping. Let’s dive in.

“If you need a minivan, but you buy a ferrari, then your family is going to go hungry”

Tim’s topline advice to bootstrapping founders is: be conservative with cash.

“Bootstrapping is almost like living in poverty. You just have to make do with what you’ve got and take advantage of every resource around you,” Tim said.

When building NerdWallet, Tim took advantage of free tools and used contractors and agencies to keep costs down… or he built what he needed himself.

Thanks to the growth of SaaS businesses, the world of freemium tools is now larger than ever. Virtual assistants and other low-cost services are competing for your attention, so take advantage of them.  

“Focus on what makes you successful”

NerdWallet went through layoffs in the years after it started raising from VCs, and Tim believes it’s because the company got sucked in by the Silicon Valley mindset.

They strayed too far from the thing they were best at: producing trustworthy content.

So he reassessed and made the hard decision to trim headcount. With renewed focus, histeam was able to drill down on their core competency and make it even better.

Tim’s advice? Avoid getting drawn in by what other companies are doing.

Excessive spending among tech companies has been the norm for the past few years, but many that have gone through layoffs admitted they grew too fast. It’s easy to see how it happened.

Everyone was raising gobs of cash, so founders felt they could always count on another big funding round with a generous markup – until they couldn’t.

“Your most valuable yet constrained resource is your time”

With any scarce, depleting resource, it's important to regularly evaluate your use of it. Time is no different.  

Tim recommends that once a week founders ask themselves if they’ve used the preceding days effectively. If not, then they shouldn’t hesitate to make a change.

“Sometimes people just do what they’re comfortable with and that often isn’t what you need to get to the next step. You have to do what makes you uncomfortable,” says Tim.

A technical co-founder might busy herself with adding features while a business co-founder blasts out unrequited cold emails… and this might feel productive because each person is keyed into what they know.

In reality, if the company is still struggling, then this strategy only wastes time while their runway shrinks.

The takeaway? Pause, step back, and figure out what needs to get done to hit the next milestone – even if it sucks.

The upshot

Ultimately, the startups that survive today’s economic conditions will need to identify and execute on what works best for them.

Founders should be creative in how they stay afloat.

Alternative funding sources like venture debt and revenue-based financing from companies like Pipe and CapChase are getting more and more popular.

Non-product revenue can also help extend runway. Airbnb’s famous cereal box strategy comes to mind.

Down rounds and debt might not be as sexy as a big-dollar markup, but both are better than being dead.

If a startup is “default alive” as Y Combinator-founder Paul Graham describes in one of his famous essays, then you have more leverage and flexibility than a company that needs to raise its next round to survive.

No matter what, traditional business values will continue to abide. Traction, growth, and profitability always reign supreme.

Companies that have those three wrapped up will probably be okay, no matter the market.

Will McKelvey is an investor, MBA student at U.C. Berkeley Haas, and former healthcare and economic policy advisor in the U.S. Congress. At Berkeley, he co-founded Courtyard Ventures, a pre-seed fund backing startups coming out of the Cal ecosystem. Follow him on Twitter @will_mckelvey, read his newsletter on startups in the Midwest, or reach out via email: wmckelvey13 (at) gmail.