Why we said no to VC funding

Lachy Gray, 5 min read

Why we said no to VC funding

When Mark and I started full-time on Yarno in May 2016, I had no idea what I was getting myself into. I’d never run a business before, let alone a startup. As Kate, my very supportive wife says, my Yarno journey has been the equivalent of an MBA - both in learning and expense!

We decided early on to fund Yarno ourselves, affectionately known as "bootstrapping". We saved some money so we could afford to work without a salary for a period of time. Mark was freelancing as a digital project manager, while I was focused on creating the Yarno platform. We didn’t consider Venture Capital (VC) funding at all in the early days, since we didn’t know where we were going to focus or what our product was.

Bootstrapping Yarno has given us the freedom to make our own decisions. And it’s also given us much grey hair, since our business and personal finances are inextricably linked.

When I first learned of VC funding it made a lot of sense. Our primary concern was running out of cash, and in our eyes VC funding equalled a big cash injection. Win!

We felt this concern most keenly one and a half years in. We’d signed a few clients and appeared to be gaining momentum. Yet then we experienced a lull. With no historical data to rely on, we didn’t know if this was typically a quiet period or if the early sales had lulled us into a false sense of security.

At the time there were two things we desperately wanted more of; time and money. We felt we were onto something with the product and that with time we could prove it. But as I’ve learned the wonderful thing about business is that expenses carry on, oblivious to revenue and the stress levels of its owners.

Although we were say 70% certain it was just a quiet period, the uncertain 30% was screaming at us to consider a plan B. So I diverted my attention to creating a pitch deck for investors. I researched how to write a 10 slide pitch deck and invested hours into every slide. Much time was invested in reading stories from the perspective of VCs and founders of great success and dismal failure. And Mark and I met with potential investors.

It was during this process in general, and our meetings with investors specifically, that reaffirmed our desire to stick with bootstrapping.

Our business model is a combination of Software as a Service (SaaS) and consulting. Mark’s fond of calling it “SaaSulting”. We came to Yarno from service based digital agencies. So SaaS held a lot of appeal - make a digital product that can scale, and receive recurring revenue for access to it. Yet when we spoke with potential clients we discovered that’s not all they wanted. They liked the product, yet wanted our guidance on how to get the most from it.

So we developed processes that saw us collaborating with clients to maximise their investment in Yarno. We project managed content creation, producing custom content tailored to our clients’ needs and learners. We dug deep on their learners wants, needs and fears. And we collaborated with clients on how best to communicate Yarno to their learners.

We thought this was a great solution. The investors we spoke with saw it differently. They referred to this model as “high-touch”. And they asked how are you going to scale it?

This was a key question to answer. We’d always talked about how we hoped the business would grow. It became immediately apparent that our desire to grow and an investor’s desire to scale a business 50x or 100x were widely different.

To 50x Yarno would require us to move towards a “low-touch” model. One where clients can signup, onboard and use the platform with minimal assistance from us. In our opinion this is what most SaaS based learning companies do. Which removes one of our key differentiators.

We learn the most about our clients; their business, their aspirations and their challenges, during our onboarding process. Typically this involves a workshop, where we dive deeper into their business needs, success measures and target audience. The understanding we gain allows us to tailor the communication, content and delivery of Yarno to achieve the best results for our clients. We just couldn’t see how we could deliver the same results and service in a low-touch model.

To 50x Yarno would mean expanding overseas. While it’s not out of the question, we’re focused on partnering with our clients in Australia. Providing them local support, whether that’s in person or on the phone. We hear from clients all the time that they appreciate our responsiveness and our focus on building relationships.

To 50x Yarno would mean rapidly expanding the team. My initial reaction to this was awesome! I feel that with more Yarnoers we can produce more results for our clients. Yet it also means more hiring, more people in the office, more onboarding & training, more hierarchy and more wage expenses. All variables that are manageable with time, yet I imagine are exponentially challenging with speed.

Increasing wage expenses really stands out to me. If we grew our dev team from 2 to 10 say, we’d then have 10 devs to find work for. This could dictate the types of clients we work with. The larger our wage expense, the more revenue required. So the deal sizes in both value and volume of learners would likely increase. Which could close the smaller end of the market to us and push us towards larger enterprise. Which coincidentally increases our competition, since this market attracts the most interest from competitors.

On the product side I feel it would create immense pressure to add features and enhancements to the product, to keep the devs busy. There’s also the reality of managing an additional 8 people. People coaching deserves time and effort, since I believe attracting and retaining A players is core to our success.

We’re proud of our team culture. It was one of the attractions for Mark and I in starting our own business. And we’ve learned that culture isn’t something that takes care of itself. It needs to be cultivated and pruned regularly. We struggled understanding how we could maintain the culture if we grew rapidly.

Bootstrapping forces us to ask and listen to our clients about their needs and pain points. We don’t have the luxury of a year’s expenses in the bank to focus on building out the product. Instead we operate within constraints, which forces us to question every enhancement and feature on the product roadmap. We define what we should Stop doing, as much as what we should Start doing.

I’m no business expert. I’ve learned a lot in 2.5 years, yet the more I know the more I realise how much I don’t know. Ultimately we make decisions based on the information available to us, and a healthy reverence for luck. We believe that bootstrapping is the right choice for us right now. Who knows what the future holds!


Lachy Gray

Lachy heads up the Product team at Yarno. He's our resident rationalist and ideas man. He also reads way too many books for our liking.

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