Posted on in Company, Co-Ops by John Luther
Less than 1% of startups secure venture capital funding. At Limeleaf, we're part of that 99% – but by choice.
Since founding our company, a few people have asked how we plan to fund product development. Most assume we'll try to raise VC money. Today, we'll explain why we aren’t taking that approach and what we’re doing instead.
We're Not a Typical Startup
As a worker co-op, our ownership structure is fundamentally different from traditional companies. We're owned and controlled by our members, who are also our employees. This means that taking money from any investor is complicated. We'd have to navigate a complex web of ownership and control issues, which would lead to more headaches than benefits.
Why we love the cooperative model:
- Members have a real stake in the company's success
- Members have a vote in how the company operates, leading to higher morale and job satisfaction
- Profits are distributed equitably among all members, building wealth for everyone
Taking VC money would require us to establish an investor-only class of owners, make major revisions to our operating agreement, and deal with other bureaucratic headaches. We'd rather invest that energy in creating exceptional products and serving our customers.
Sustainable Growth, Not Hypergrowth
VCs impose aggressive (usually unhealthy) expansion goals on the companies they fund. Our goal, by comparison, is to build great software products that customers love and provide our members with a middle-class income and enough free time to enjoy their lives.
Our products will target small customer niches--very unattractive to VCs looking for the next big thing. However, we believe these niches are underserved, and by focusing on them, we can build strong relationships with our customers and create solutions that meet their specific needs.
Our revenue goal for our first product is $1.5 million by the end of 2025, followed by 7% growth per year. This achievable target aligns with our vision and values but would be laughably small in a pitch to VCs, where multi-billion-dollar exits are the prize.
Markets Over Capitalism
Most VCs believe in capitalism, while we believe in markets.
While often used interchangeably, these terms have distinct meanings. Markets refer to the exchange of goods and services between buyers and sellers, driven by supply and demand. Capitalism, on the other hand, is an economic system that prioritizes profit, market dominance, and aggressive growth over the well-being of workers, communities, and the environment.
We believe in harnessing the power of markets to benefit our members, customers, and community, not a small group of elites who already have more than enough money.
Control Freaks
Once you take VC money, you're beholden to them and give up a lot of control over your own company. We're not willing to make this trade-off, as it would conflict with our insistence on democratic decision-making among our members.
More to the point, we value our independence and autonomy, and we're willing to forgo the potential benefits of VC funding to maintain them.
Listen to Customers, Not Investors
By skipping VC funding and the pressure for rapid growth, we can focus on what matters most to us: our customers. We have the freedom to:
- Prioritize long-term customer satisfaction over short-term metrics
- Develop features based on real user needs, not market domination
- Build lasting relationships with our customers
So, How Do We Pay for Product Development?
From the beginning, our strategy has been to fund our product development with proceeds from contract software engineering and consulting. So far, it’s working. We could build products much faster if we spent all our time on them, but “move fast and break things” isn’t our style, either.
We also have experience building large systems very (very) cost-effectively. One ingredient in doing that is eschewing mega-corporate cloud services like AWS and Google Cloud. First, they’re way too complex and feature-bloated for what we need, and more importantly, they’re insanely overpriced.
On top of all that, we’re cheap frugal. Our company costs are very low. We use FOSS wherever we can and host it ourselves (one example, we use Mattermost instead of Slack). Our goal is to whittle down our monthly productivity software bill to $0.
Getting Rich Isn’t the Point
VCs will never give us their money, and we will never become a Silicon Valley unicorn, but we don’t want either. Instead, we want to build a company that values members, cares for its customers, and contributes positively to society. For us, that's the ultimate success story.
We encourage all startups to think hard about whether they really need VC money. Lighter Capital has an informative article on why VC money isn’t for everyone and an explanation of non-dilutive funding (we have no affiliation with Lighter Capital and don't want their money, either).