A pitch for ‘reality-based’ startups

Rupal Patel (center) with employees at VocaliD, a Belmont company that designs synthetic digital voices.

Nicole Sahin has worked for companies that took money from venture capital firms.

“My impression of venture-backed companies can sometimes be the philosophy of throwing cash and bodies at growth, when sometimes, time is the magic ingredient to the formula,” Sahin says.

So when she started her own company, Boston-based Globalization Partners, in 2012, she didn’t take meetings with venture capitalists, business plan in hand, looking for a few million bucks. Her firm helps its clients hire employees anywhere in the world with a minimum of red tape. Four months after getting going, Sahin landed “a pretty tiny contract” with a Texas security company, HID Global.

Today, Globalization Partners has almost 150 employees, and is trying to hire 100 more. It brings in $350 million in annual recurring revenue (meaning cash based on long-term contracts — not one-time deals). And it has been on the Inc. 5000 list a few times — most recently, as the 33rd fastest-growing company in the country.

In the world of startups, we’re often more transfixed by stats related to funding raised — or the fantasy valuation that that funding implies — than revenue or profitability. (And yes, I include myself in that “we.”)

But there is a class of fast-growing startups in Boston that eschews VC dollars in favor of actual revenue from actual customers. You might call them revenue-driven, rather than venture-backed.

Christopher Bergh calls them “reality-based,” rather than “story-driven.”

Bergh is CEO of a Cambridge startup called DataKitchen, which helps people who work all day with data do their jobs better — at a price of $100,000 and up for a license to use the company’s software.

“Venture-backed startups have to sell a story,” Bergh explains. “In many cases, the story is more bluster and bravado than facts on the ground.” Investors want to hear about tapping into billion-dollar markets and leveraging cutting-edge technologies. “If the story that an entrepreneur sold to investors two years ago is correct, but develops a little slower than promised, pressure and unpleasantness ensue. These companies are story-driven, not reality-based.”

As a reality-based company, DataKitchen has 26 employees, about $5 million in annual recurring revenue, and just one part-timer handling administrative tasks. At a prior startup Bergh worked at — which was acquired at a fire-sale price, after raising $70 million in venture capital — he says there were 10 people handling those administrative tasks, with about the same level of company revenue. “The money that we save in these areas is reinvested in our products, which will accelerate growth,” says Bergh.

Justin Borgman raised $17 million for his first startup, Hadapt. But this time around, with a Boston company called Starburst Data, he’s using customer revenue as the fuel. When you’ve taken money from VCs, he says, “the goal at any given point in time is, ‘What milestones do we need to achieve in order to raise the next round of capital so we don’t run out of money?’”

With Starburst, which helps customers deploy an open-source data analytics technology called Presto, “we don’t think like that,” Borgman says. “We ask, ‘What do we need to do to continue to build a long-term profitable business?’ We are in no rush this time around.” Founded in 2017, Starburst already has 50 employees and customers in 27 countries.

Rupal Patel cautions that things are not “rosy on the bootstrapped side — financially or emotionally.”

Her company, Belmont-based VocaliD, develops digital voices for companies that want a unique brand for products that speak, or for individuals who have lost their ability to speak. Funding has come from grants, customer revenue, and personal investment, she says. As a founder, “you aren’t being paid” — or you’re paid little — and “the responsibility is palpable,” she notes.

Patel recalls organizing a launch party for one of VocaliD’s products at conference in Toronto. Rather than renting a video projector on site, she decided to save money by packing one that she already owned. But she forgot about a screen to project the video onto. Luckily, a half-hour before the event was slated to start, she and her colleagues found a white bed sheet and taped it to a wall. “Together, we ‘MacGyver-ed’ a solution, and the event was a highlight of the entire conference. It was a bonding moment for the team,” Patel says.

Nathan Rothstein remembers similar moments from the early life of Project Repat, which makes quilts and blankets out of sentimentally important T-shirts sent in by customers. In 2012, he was living in the company’s office on the edge of the Back Bay, worried that towers of cardboard boxes would crush him in his sleep. “But it was also a euphoric experience,” Rothstein says, because a deal with the discounting site Groupon had generated hundreds of orders almost overnight. This year, Project Repat, will bring in about $13 million. While the company only has four employees, it sends sewing work to three manufacturing shops in Fall River, Texas, and North Carolina.

It’s hard to ignore the fundamentals of business when you don’t have investors funneling in money and hoping to get it back sometime in the coming decade. “We spend our money wisely and just make sure that we spend less than we make each month,” says Todd Garland, CEO of BuySellAds, a Boston company that helps online publishers sell advertising on their sites. “I love the constraints — they force us to be creative, ruthlessly prioritize, and focus on sustainability and growth at the same time,” rather than growth at any cost.

Bergh, the CEO of DataKitchen, says he often gets cold calls from junior employees at venture capital firms, asking him if the company is in need of capital.

I asked why he wastes time taking the calls.

“I love getting them,” he says — likening it to the nerd getting attention from the “cool kids.”

“At some point, we may want to raise money, because we may need to spend ahead of our revenue,” Bergh says. “But right now, we’ve got a bunch of open positions, and we’re able to grow from our customer revenue. I’m not against VC, but I do think bootstrapping is a better way to grow a business.”