NEW YORK -- The business world is filled with starry-eyed entrepreneurs who hope that the blessings of angel investors and venture capitalists will transform their startup dreams into companies with billion-dollar valuations.
But some successful startups have been bucking the trend by growing and expanding without taking a dime from major outside equity investors.
Ron Rudzin, an entrepreneur from Queens with a long history in the furniture business, took $350,000 of his own money to write a business plan in 2007 to form his online mattress company, Saatva.
"People who raise money, rather than be self-funded, tend to spend wildly because it's other people's money, and they throw a bunch of stuff on the wall and see what sticks. I don't do it that way," Rudzin said. "I'm much more meticulous and efficient. I might go a little slower, but in the end I believe I win."
At age 16, he took a job at Jennifer Furniture, a fledgling company that later became a national chain selling convertible sofas and furniture. He spent more than 20 years working his way from sales representative to store manager and to vice president of national sales. He held equity interests in four of its stores as the company expanded into a national chain.
After he left Jennifer Furniture, he invested in various enterprises, but he had always had his eye on starting his own e-commerce company.
"I felt the world was going in that direction," he said.
Rudzin's vision was to sell American-made, high quality, coil-based mattresses online at a fraction of the price retailers charged for store-based brands. He added service to the equation by having them hand-delivered and set up in customers' homes. It worked.
"We were the first ones out there," he said.
Saatva, which is Sanskrit for "truth," turned a profit after its first three months in business in 2010, he said.
The company said that sales, which totaled $2 million in its first full year in 2011, surged to $76 million in 2015. Rudzin is projecting sales of $180 million this year and at least $275 million in 2018.
Those who buck the odds by "bootstrapping" their own enterprises are rare, experts say.
"It's a huge anomaly," said Mark Walsh, head of innovation and investment at the U.S. Small Business Administration. He estimated that as few as one in 50 brick-and-mortar companies and one in 10 online companies could build their businesses into $50 million or $100 million enterprises on their own.
But taking venture capital can be risky. In their haste to get financing, startup founders often fail to read the fine print and later discover that they have signed away huge shares of the profits. In some cases, founders may be removed by the board of their own companies by the time the businesses are rapidly growing or plan to go public. For these reasons, some founders opt to take debt capital from banks and investors instead of giving away equity.
Spokeo, an online people search engine, has been able to generate tens of millions in sales without venture backing.
"We don't need it," said Harrison Tang, a founder of Spokeo. But Tang, 34, did not always feel that way. When he created Spokeo with three college buddies from Stanford University in 2006, he tried to get equity financing, but was turned down by more than six angel and venture capital investors. Even his father, an entrepreneur himself, told his son he never expected to get the money he lent him back.
"That's how much confidence people had in us," Tang said, laughing. But he -- and his three other founders -- Ray Chen, Mike Daly, and Eric Liang -- pressed on by borrowing $300,000 from parents and other family members.
Initially, Spokeo was a free program that aggregated information about people from social network sites like Facebook and Friendster.
When the founders ran short of cash in 2008, they revamped the site, turning it into a people search program that gathers data based on names, phone numbers and email addresses, and started charging a subscription fee. The company said that its revenue surged to $78.5 million in 2015 from $11 million in 2011. Tang expects revenue to easily exceed $100 million by 2018.
Tang said he was proud that all four founders remain with the company, which might not have been the case if equity investors had been involved.
"We have been winning," he said.
Dana Ehrlich also self-financed his business-school idea into a multimillion-dollar company. In 2004, Ehrlich came up with the idea for a grass-fed, organic beef importing business, Verde Farms, while visiting the grasslands of Argentina.
So, he wrote a business plan around importing such beef from Uruguay, New Zealand and Australia for his MBA thesis at Dartmouth's Tuck School of Business in 2005.
In 2006, Ehrlich tried to find angel investors, but refused to accept the terms.
"They wanted between 10 percent and 20 percent equity for a six-month loan," he said.
So he used $100,000 from savings and student loans to secure debt financing. It was a tough slog in those early years, and Ehrlich nearly decided to shut down in 2008. But everything changed in early 2009, when he signed on two national retailers, Wegmans and Costco.
The company, which is based in Woburn, Mass., said it sold 10.1 million pounds of grass-fed beef in 2015, up from 240,000 pounds in 2008. Sales, which totaled $665,000 in 2008, surged to $7 million in 2009 and more than $50 million in 2015.
Equity investors are now coming to him, and he's the one turning them down.
Verde -- like Saatva and Spokeo -- does not rule out taking venture capital money in the future. But these founders say it would be for strategic rather than financial reasons to bring on venture capital expertise.
"Most VCs are former entrepreneurs themselves," said Ben Veghte, a vice president at the National Venture Capital Association. "And they've been in the trenches and understand what it takes to build something from nothing and to build a successful company."
And for businesses with plans to go public, the guidance of a venture capitalist may be needed.
Walsh, of the Small Business Administration, said it was rare that a company went public without at least some outside equity holders.
"I don't remember seeing a company going public on the Nasdaq in the last 20 years who arrived at the IPO with only management owning the company," he said. "It's almost a rite of passage."
SundayMonday Business on 06/06/2016