Instead of concentrating on companies that have swallowed their third or fourth round of funding and continue to consume cash, the smart search is on for successful, entrepreneurial technology businesses that have built a solid foundation with little external funding, and need to take the next big jump in growth. To keep ahead of their markets and lead to greater value for shareholders, they may need to ramp up their sales force or expand internationally. Elias explains:

“A bootstrapped business often starts with the founder making all the sales. Once you get over that and show that you can hire and train salespeople in a reliable way, then you have the capacity to expand. At that stage, many business owners face a dilemma: should they sell the company or take capital and grow it? We recommend a third path: sell a bit of your company to us and take capital.”

That can mean adopting a different attitude to cash flow. “Activities that are great for near-term cash flow aren’t necessarily those that are providing the most strategic value for the business. So it’s not unusual for us to suggest shutting down activities that are good for cash flow, but not so good at creating shareholder value. It’s something we see quite frequently.”

“Often, the less a founder is interested in raising capital, the more we like the company. In some cases we are pitching to them rather than visa-versa. We often establish long relationships with companies before we invest. It’s not unusual to have a multi-year relationship before an investment is consummated.”

Elias feels that a key difference regarding “bootstrapped” companies is that their founders have much more self confidence than early stage entrepreneurs. “They have already shown that they can build a company without our help. Our relationship with them is different.”

There is nonetheless a clear opportunity for Kennet to help such companies, and often that help comes in the form of finding the best people to take the company forward to the next level:

“A lot of bootstrapped businesses have similar characteristics. You will find a strong, capable founder at the top with twenty people reporting to him like worker bees. There is frequently very little in the way of second tier management, and the founder may not realise that these are important hires. So much of what we do is recruitment-related.”

The reality is that a lot of “bootstrappers” are heavily reliant on serendipity in hiring:

“Most bootstrapped companies have not used search firms before, instead recruiting people through existing, sometimes opportunistic relationships. When asking a founder CEO how he found his VP Sales, it’s not unusual to hear ‘We met on a plane/train/cruise, and that although he didn’t have directly relevant experience, I liked him, and sales are sales...’”

Looking ahead, Elias sees some challenging times ahead for the traditional venture capital model, which Kennet abandoned in favour of Growth Equity in 2002. “I think it is going to be a completely different landscape. In Europe, firms are getting to the end of their funds and the fundraising market is dire. There may well be 50% fewer VCs in four years than there are now, in both the US and in Europe.”