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Hello ,

I am writing a quick follow-up to the posts I wrote a few weeks ago about the different ways you can build your dream company 1) Ol’ Skool Way (using your own savings); 2) OPM (Other People’s Money); 3) Bootstrap and 4) Buying an existing company. You can read in detail here and here.

I came across this news recently (yes I do succumb to reading startup fundraising news occasionally) about Creatio raising US$68mn from external investors. Boston-based Creatio provides low code (easy to use drag-and-drop) Business Process Management (BPM) and Customer Relationship Management (CRM) software on the cloud. At the outset, there’s nothing special. Once I read further, I found out that this is the first time the company raised outside funding. The founder bootstrapped the company since its inception in 2014, growing it to a 600-person workforce with presence across 110 countries (through partners mostly).

As I pointed out earlier, it is possible to build your company without raising external money from the get go. Raising money once you’ve proven the Product Market Fit and demonstrated sizable scale, will give you more negotiating leverage with investors.  

Unless you’re building Clubhouse. Like many social media platforms before it, the founders need to raise a humongous amount of OPM (rhymes with opium 😬) up front. Why? Usually social media companies need to build a super large audience, before turning on the monetization switch. I suspect Clubhouse will soon introduce new features to start generating revenue. Until then, it needs investors’ money to keep the lights on and the server running (less red error messages when you open the app).

Anyhow, a quick back-of-the envelope to estimate Creatio’s fundraising round (you can view the spreadsheet at this link).

Amount raised: US$68mn

Dilution (new investors' shareholding %): 10-15% minority stake (my assumption)

Average SaaS forward (next year’s) revenue multiple: 22x*

Company Valuation: US$68mn / 10-15% = US$453-680mn

Annual Revenue: US$453-680mn / 22x = US$21-31mn

Founders’ stake: 100% - (10 to 15%) = 85-90%

Founders’ stake in dollars (net worth): US$385-612mn

Not too shabby to clock this achievement after 7 years. In a nutshell, build your company at the pace/approach that suits you.  

Be great,

Reez Nordin

*According to BVP (Bessemer Venture Partners) Nasdaq Emerging Cloud Index https://www.bvp.com/bvp-nasdaq-emerging-cloud-index

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