The Power of Growth Capital for Bootstrapped Companies

For many entrepreneurs, bootstrapping is a badge of honor. However, while self-funding, whether through savings, revenue reinvestment or other means, can enable business owners to maintain absolute control of their company, capital limitations can hinder long-term growth.

Managing cash flow is the second biggest growth obstacle for Inc. 5000 businesses, according to Inc.’s 2023 CEO survey, just behind hiring and retaining employees. Pursuing growth-equity investment could help your company reach its most ambitious goals, without compromising your vision.

Just look at Dr. Heidi Jannenga, co-founder and chief clinical officer of WebPT, a leading software company for physical therapy practices and a nine-time Inc. 5,000 honoree. She grew her company from $15 million to more than $100 million by partnering with Battery Ventures, a multi-stage technology investment firm.

Jannenga recently joined Battery General Partner Chelsea Stoner on a webinar co-hosted by the firm and Inc. to share her perspective with fellow bootstrapped entrepreneurs on how to conduct a thorough vetting process and build a transparent, trusting relationship with an investment partner. 

A CHEAT SHEET FOR EFFECTIVE VETTING

Deciding to take–or not take–outside capital is a massive decision that can transform a company’s trajectory. For Jannenga, the decision came down to whether she wanted to continue to grow at her current pace or accelerate growth through acquisitions.

Determining who to accept funding from was a major decision. Jannenga launched a year-long due diligence process, traveling the country to meet potential investors.

Here’s what she learned and shared with her fellow Inc. 5000 honorees:

Know what you want from an investor.

Jannenga wanted WebPT to become a market leader and provide value to as many physical therapists as possible. She knew she would rather have a smaller piece of a larger pie than a larger piece of a smaller one. “We saw that potential, and we wanted to capture it. The way that we knew we were going to get there was by partnering with a firm like Battery,” she says.

Some firms are operators; some are coaches.

Firms like Battery seek to provide guidance and help founders “see around corners,” Stoner explains. For entrepreneurs considering outside investment, Jannenga recommends asking about how hands-on an investor intends to be as part of the vetting process.

References will give it to you straight.

Asking for a list of investors’ portfolio companies was one of the most illuminating parts of the diligence process for Jannenga, as it allowed her to reach out to founders directly to ask how investors handled setbacks and conflicts.

Cultural alignment is a must.

While the financial terms of an investor agreement are always closely scrutinized, founders should not underestimate the importance of ensuring alignment in culture and values.

After the partnership agreement was finalized, the Battery team came to WebPT’s offices in custom t-shirts adorned with both companies’ logos-with plenty to share with Jannenga and her team. That was the moment Jannenga knew she had made the right decision: Battery was clearly embracing the company’s culture, not trying to change it.

Strong relationships don’t happen overnight.

As Stoner explained during the webinar, relationship building between founder and investor takes time and work, something Battery emphasizes with prospective founder partners. “We always encourage companies and founders to think deeply and spend a lot of time getting to know their partner,” she says.

THE MAKINGS OF A SUCCESSFUL PARTNERSHIP

During their partnership, Battery helped WebPT acquire four startups and recruit an executive team, including an experienced CEO, Nancy Ham. And by the end, WebPT expanded its potential annual recurring revenue (ARR) per customer over 20 times. In 2019, Warburg Pincus acquired Battery’s majority interest in WebPT.

While WebPT’s growth numbers are impressive, the heart of the success story is Stoner and Jannenga’s personal connection. “Everybody talks about when you get an investor that it is like a marriage. That’s really true,” Jannenga says.

To build a strong relationship, communicate frequently–not just at quarterly board meetings–and with utter candor. Letting someone into the business you hold so dear can be scary, but doing so can provide much-needed counsel, in addition to driving business growth.

“It was really helpful to have that kind of partner and resource to fall back on in trying times and in good times to celebrate,” Jannenga notes. “It’s all about celebration as well.”