Backing yourself: when self-funding makes sense

It’s the popular narrative of success in the startup world: the fledgling company that’s lavished with VC money and becomes an overnight global sensation.

Of course, plenty of Kiwi startups take the far less glamorous path – whether by choice or necessity – of slow but steady organic growth. Caffeine asked three founders how (and why) they’ve successfully self-funded.

Certain types of startups will always be suited to outside money, whether it’s deeptech concepts that take years to build, or those with super-scalable business models.

But in today’s tighter investment market, a growing number of startups are turning their attention to bootstrapping and revenue-based growth.

“The investment market has become a lot tougher in the last few years, especially for tech startups, and people are looking for alternatives,” says Joe Slater, general manager of startups at Creative HQ.

“From Silicon Valley to right around the world, there’s been a real shift in focus to generate revenue as soon as possible.”

That’s both from the startups themselves, who are seeking to acquire paying customers more quickly, and from investors, who may be less relaxed about burning through the cash.

Slater says New Zealand hasn’t been as affected as bigger markets that have previously relied on large amounts of free-flowing VC money.

“But I think the number of New Zealand startups who are saying, ‘okay, how can we make money quickly out of this?’ has massively increased.”

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When the selling is easy

For the couple behind Solid, Laura Nixon (creator and founder) and Adam McConnochie (co-founder), organic growth was the obvious path.

“We’re not anti- or pro-investment,” says McConnochie. “But as a product-based business, the best way for us to raise money is to sell more product.”

The business was started four years ago by Nixon, a dental hygienist on a mission to drive out plastic waste from the industry. Solid manufactures a range of sustainable toothpaste and mouthwash products from its factory in Porirua, employing four staff. About 70 percent of revenue is online sales, complemented by 80 stockists around Aotearoa.

“The great advantage of being an online business is that cashflow hasn’t been a massive issue for us,” says McConnochie.

“At the start, it was very much one sale at a time, one person at a time.”

Having been through a number of startup programmes – including The Launch Lab, Climate Accelerator and Ministry of Awesome – they’ve pondered the investor question from time to time.

“Whenever we were asked, ‘what do you need that cash for and how would you use it?’...we never really had a good answer. So we thought, ‘let’s not do it then’.”

The couple have self-funded everything – with two exceptions. They received $20,000 in grant funding through Creative HQ, which allowed McConnochie to leave his full-time job. And they raised about $23,000 from a PledgeMe campaign earlier this year to secure their factory lease.

“We went on PledgeMe and said ‘we’re running out of room at home, we want to move to a factory. Will you help us?’ Around 80 percent of people who pledged to us were customers.”

McConnochie says equity crowdfunding is a viable option for businesses like theirs, as successfully proven by the trailblazing Ethique, and more recently the likes of Norish and others.

“The customer-led approach has always worked for us. We’ve got customers who love our product, and who embrace the kaupapa of what we’re trying to do.”

Solid has just won the Foodstuffs Emerge programme, which will see its products stocked in 140 New World supermarkets next year.

Would they take on investment in the future? The couple don’t rule it out.

“We want to become the best sustainable toothpaste company in the world, and you can’t do that alone. There’ll come a point where we’ll need some outside support.”

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An independent path

Founder of Untouched World Peri Drysdale started her fashion business as a young mother nearly 40 years ago – and has self-funded all the way. Not that it was always easy.

“In the early days, we were living right at the end of our financial resources for quite a lot of the time. And if the wind blows the wrong way, you can end up having some pretty sleepless nights.”

Drysdale recalls New Zealand’s investment landscape in the 80s and 90s was a very different beast to now.

“We kind of had the trifecta...a business run by a woman, in the clothing industry, with this crazy new thing called sustainability.”

Despite that, her high-profile business was courted by a few different investors over the years. But for various reasons, it never felt quite right to seal the deal.

One prospective investor memorably asked if they could ‘grow the business first and focus on sustainability later’. Another suitor didn’t gel with her staff, which Drysdale took as a red flag.

“I remember my team at the time didn’t think it was going to be a happy marriage. And you’re not going to make it if your staff can’t live with it.”

In retrospect, would an investor have altered the course of her business? How does she imagine it would have played out?

“I’m still not sure whether I’m investable...I haven’t had the luxury of trying it! I imagine I would be if I’d had the right investors. But if you haven’t gone down that path, one thing you don’t have to [deal with] is to do what someone tells you to do. You can keep doing what you believe is best.” 

Doing things her way has delivered its rewards. Untouched World was recognised by the United Nations for its sustainability, and the multifaceted business now exports to seven countries and sells online to consumers worldwide. Drysdale (MBE) was inducted into the New Zealand Business Hall of Fame in 2021.

Recently, the business won the prestigious Common Objective brand of the year awards, ahead of global fashion icons like Gucci and Stella McCartney.

“That’s a pretty big milestone for a Kiwi company in the fashion industry,” says Drysdale.

“It shows others that you can do it, although it does take focus and utter commitment.”

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Having a firm resolve

Jonathan Morgan and Kathleen Webber are founders of ResolvePay, which specialises in holiday pay remediation for businesses. Launching as a side hustle in 2019, they’ve steadily grown the business to compete alongside the big-4 consulting firms.

In his previous career, Morgan worked for venture-backed and listed companies like WayBeyond and ERoad. When starting ResolvePay, he knew they wouldn’t be pursuing investment – for several reasons. 

“Although we’re solving a problem and are competing with very large companies, I’d describe us as a lifestyle business. I’ve worked at startups where I’ve done the 80-hour weeks. We wanted to build this company in a way we can spend time with our kids and have a normal life.”

Secondly, he says ResolvePay is not the kind of business model that’s suited to investors. 

“We’re essentially a fixed-price consulting model, and if you don’t have a subscription or recurring revenue, it’s very hard to get VC funding. We just wouldn’t meet their criteria.”

ResolvePay has a 100 percent contractor and part-time workforce, offering people flexibility in how they work.

“That’s also one of the benefits of being self-funded...you can run your company any way you want.”

Having been on both sides of the fence, Morgan says growing a business organically requires the discipline to “only build stuff you know you can sell”, and to keep a close eye on your fixed versus variable costs.

“The VC funding model is almost the complete opposite. You grow your business really fast and end up with lots of fixed costs that are very hard to get rid of. In my 20-plus years’ working in IT, I’ve been through multiple restructures. There’s nothing wrong with that...it’s just not a business model we’d want.” 

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