Software companies may be in a better position than most high-technology companies to avoid venture capital in the early stages of development. Largely dependent on the creativity of key employees, they can usually get by for a while on a shoestring. But sooner or later, every company needs money to grow and gain market share, and -- at that point -- it might do well to exchange its shoestring for a set of bootstraps, by which it can pull itself up.
Consider Ashton-Tate, which was launched in 1980 with a $7,500 investment from its founders, George Tate and Hal Lashlee, who -- in building the company -- eschewed every unnecessary cost. For example, they located their headquarters in an unfashionable section of Culver City, Calif., and outfitted it with surplus furniture. During the first year, they each received the princely salary of $1,000 per month. Meanwhile, their initial product (called dBase II) was on its way to becoming the world's largest-selling database management program. So in 1982, with sales running at a $20-million-a-year rate, then-president Tate doubled his salary -- to about $2,000 a month.
"We didn't have any money at all, except for the $7,500 and a lease on the copier, until 1982," Tate recalls. "We thought it would be the worst thing to have too much money at the wrong time."
Eventually, Ashton-Tate's success caught the attention of venture capitalists. By that point, however, the company could afford to play hard to get. In the end, it did not accept any venture capital, but secured a $6-million line of credit from Bankers Trust Co. Since then, revenues have continued to soar, reaching $39.8 million in fiscal 1984 -- and the company still has $6 million of its bank line available.
Both Tate and his successor, David Cole, credit "boot-strapping" for the company's success. Large does of venture capital can lead a start-up to become "unforcused and arrogant," says Cole, who became president in 1982. "People forget money's just a tool. For tool many companies, it's become a game of 'My-venture-capitalist-is-bigger-than-yours."