Examples of entrepreneurs who did not use VCs until a developed/proven product:
1) Larry Page and Sergey Brin were two really smart mathematicians who knew they could write a better algorithm to find things than what had been written by Yahoo. After-all, that was not Yahoo’s focus.
Cost to the found Larry and Sergey: almost ZERO–because they were essentially the developers and the product designers.
2) Mark Zuckerberg wrote the whole Facebook site himself.
Cost to Zuckerberg: ZERO. He was an application developer.
3) Bill Gates and Paul Allen were application developers but Bill Gates’ mother had more to do with Microsoft’s success than did Gates and Allen’s software-development skills.
Mary Maxwell Gates came from a prominent Seattle family and was a successful business women herself (Bill’s dad was a lawyer). Ms. Gates was friends with John Opel, Chairman of IBM, through their work together on the Board of the United Way.
IBM was frustrated with the company that developed the pre-cursor product to DOS technology, which is called Digital Research. Digital Research developed the product called CP/M (Control Program for Microcomputers). IBM broke off negotiations with Digital Research over that product because of the terms.
After breaking off negotiations, John Opel from IBM said he would buy a product from Bill Gates if he had it ready. Bill’s mother, like many mothers, wanted the best for Bill. She precipitated the Bill Gates/John Opel deal during board talks.
What does Bill do? He goes out and buys the rights to a second generation product for $25,000 from another company. So the product known as DOS was actually developed by Seattle Computer Products. Bill Gates and Paul Allen raised the $25,000 from Bill’s well-off parents. Then, Bill turns around and sells the product to IBM as IBM had promised. With the money received from IBM, he buys the rest of the rights to DOS for $75,000.
Many people think that Bill Gates and Paul Allen invented DOS but that simply is not true. They were simply very fortunate to have been the right kind of people, with the right kind of connections, at the right time.
Cost to Bill Gates and Paul Allen: ZERO, Bill’s parents lent him $25,000.
4) In 1973 Bloomberg became a general partner at Salomon Brothers where he headed equity trading, and later, systems development. In 1981 he was fired from Salomon Brothers and was given a $10-million severance package. Using this money, Bloomberg went on to set up a company named Innovative Market Systems. In 1982, Merrill Lynch became the new company’s first customer, installing 22 of the company’s Market Master terminals and investing $30 million in the company. I think it is safe to say that when you have $10 million to build a product that you’ve specifically designed for customers who says they will pay you another $30 million to develop it, you’re chance of success is pretty darn good!
Cost to the Michael Bloomberg: a lot but mostly from an already secured source.
5) Sheldon Adelson is another billionaire who owns Las Vegas Sands Corp. You would think that he made his fortune by raising VC money with a non-tech idea, but that is not true.
He started a trade show called COMDEX, that brought people who were interested in technology from all over the world. At the time, Las Vegas was an inexpensive place to hold conferences because casinos wanted traffic. He made millions from this conference. To this day, it is one of the biggest in the world.
Adelson used the money he had to buy a casino and the rest is history.
Cost to Adelson: the cost of starting a trade show is not as great as you might think. The money the entrepreneur receives from participants is then used to pay for the event. In other words, there is a mechanism to make money without spending it.
6) Jack Dorsey started Twitter who was trained as an application developer. Also, an ex Google millionaire joined the team
Cost to Dorsey: Zero
7) Michael Dell founded Dell Inc. To start a computer company you would think that it takes millions of dollars, but actually it did not take Michael Dell much at all.
As many computer aficionados know, computers are made by buying parts from many manufacturers, usually based in China. Many computer aficionados built their own computers and Dell was no exception.
He had the entrepreneurial spirit so instead of building just a computer for himself, he built computers for people he knew. Each time, he made a little money. Finally, he decided to sell computers full time.
Cost to Michael Dell: He didn’t have to spend a dime. He would get the money up front, then order the parts with the money he received, assemble the computer, then give it to the buyer.
If you review the Forbes 400 list of the wealthiest Americans, you will notice that:
2) Luck through timing (for example Gates)
3) Having a job that paid a lot that was then parlayed into a business
Are the only predominate exceptions to ideas that take little to no cash from the founders.