SaaS Interviews with CEOs, Startups, Founders
How We Bootstrapped Backblaze from $0 to IPO and $87m in ARR
05 Oct 2023
Chapter 1: What is the main topic discussed in this episode?
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Hello.
Chapter 2: How did Backblaze start with no funding?
Good morning. Good to see you all. All right. So my co-founders and I, we did two companies before. Both of them were venture funded. Both of them were acquired. When we started Backblaze, we said, you know what? There are some good parts about venture funding. There's some bad parts. Let's do it differently. So we started by bootstrapping. We put our jobs.
We said for one year, we're going to do nothing else. In terms of venture funding, there's going to be no PowerPoints. There's going to be no spreadsheets. There's going to be no pitches. Just focus on product, focus on customers, see how it goes. So we did that for 15 years. We took the company public in 2021. I'm going to try to share 15 years' worth of history in 20 minutes or less here.
So this is what it started like, probably what a lot of you guys started like, right? Five guys, one-bedroom apartment. The tall guy standing in the room there in the blue shirt, that's his one-bedroom apartment. He's living in the one bedroom that's behind the wall over there. All of us are crowded in.
The reason I'm wearing flip-flops and a T-shirt is because it's hot as hell because there was no AC and we didn't have enough power to power the servers and the AC at the same time. So this is how it started. And then in 2021, we were able to bring about a third of the team out to New York, out from San Francisco, to ring the bell on the NASDAQ in Times Square.
Really exciting day, super fun, you know, the whole shindig. When we started the company, we said, hey, what are we going to do? Are we going to run this forever as a private company? Are we going to raise funding? Are we going to sell the company like we did the last two? Are we going to take it public?
And taking it public was one of the possibilities, but it was a little bit like trying on your dad's pants when you were a kid. Sure, yeah, yeah, maybe someday we'll fit into these. It was still kind of a fiction. Right? And so I'm going to share some of the learnings, both in terms of what it took to go public, as well as why bootstrapping is actually a good way to get to be able to go public.
But one of the, I think, the... the things I want you to walk away with is it's possible to go public, right? And I think at different stages, it doesn't feel that possible, right? Okay, so we're going to talk about how you decide, how you prepare, how do you actually execute on that process. this was our path to their revenue-wise.
And so if you look over here, let's say 2014, we were at about $10 million in revenue. You know, many of you are probably, you know, many of you are beyond this. Some of you are beyond this. Some of you are at the beginning of this. Some of you are in the middle.
But, you know, sitting in 2014 with $10 million of revenue, you know, kind of going like, oh, yeah, maybe we'll take the company public still seems like a fiction. But then you look at it, it's only seven years later and, you know, eight years later and we're public, right?
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Chapter 3: What were the challenges of bootstrapping for 15 years?
It's like Amazon's S3 service for object storage, but it's one-fifth the price point. So if you're using Amazon S3 and you want to save a whole bunch of money, make it easier, you know, come check out B2. So deciding. So...
I think generally there's a belief that if you're going to go public, you have to raise money, and you have to raise a ton of money because you have to burn a ton of money because that's the only way to go public. It's a contrarian viewpoint, but I think bootstrapping is actually in many ways a better way to get to be a public company. Here's some of the ways that I think it helped us.
When we started the company, we were going to use Amazon S3 as the underlying way for the infrastructure for our cloud backup service. That's what we wanted to do. We did the math and we said, oh, we're going to lose money on every customer. That didn't seem like a good way to build a business.
If we had raised a whole bunch of venture funding, we probably would have done it and said, we'll figure it out later. Somehow we'll figure out how to make the math work. But we didn't have any money. So we had to start from first principles and figure out how to actually make the business work.
We ended up designing a platform that was drastically less expensive than Amazon, which we probably would have never done if we had $10 million of cash in the bank on the first day. It also just continued making us efficient throughout the years. Every single day, the culture was built up that you have to focus on the efficiency of building the business.
That is a fundamental thing that comes with bootstrapping. It also, I think, drives your go-to-market approach. For us, we couldn't spend money on ads. We didn't have any money. So we built a really efficient go-to-market, which was self-service and PLG-based. And we started writing a blog that was focused on storage and had about 3 million people a year that started reading it.
That drove a lot of people to come and check out the company. didn't really cost a lot of money because we didn't have a lot of money. So I think bootstrapping has lots of advantages that actually help you build a business, and especially in today's environment where companies care about profitability and EBITDA margins and cash flow in the public markets.
It's a value, and it's hard to build that value after you've raised tons of money for years and years and years to change the culture to do that. And this is kind of the last one, which is that whole culture of establishing a bootstrap is part of that. Okay, so those are some of the advantages, I think, of building Bootstrapped as a path to going public.
Now, on the comment of the when do you actually go, so what all of the experts that we spoke with said was you've got to wait until at minimum, minimum, you're $100 million in revenue, and really you should be at $300 million because that's the size of companies that go public. And they're right. That's the average size of company that goes public. You know why? Because the banks make more money.
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Chapter 4: What strategies led to Backblaze's growth to $87 million ARR?
So the bankers, they drop in, they take you public, they leave. The analysts at these banking firms are who are hopefully going to be with you quarter after quarter after quarter after quarter. And so when you're picking your banks, you're actually picking your analysts. So start by looking at the analysts, then pick the banks. Okay, other things. Building teams. So the board.
We had five founders. The five founders were the board members for like 12 years to me. When you go public, you have to have an independent board. The insiders are not independent. So you have to recruit new people who are going to be your independent board members. Lots of interesting tidbits about how you pick board members. One thing that I'll share with you is I had a friend who said,
oh, I know this board member who's a board member of Google. Do you want an intro? And I was like, yeah, that sounds amazing to get a board member from Google. And then what I realized, talking to some people who've gone through the experiences, that's not who you want.
Because if they're the board member of Google, how much time and focus are they going to give you as a board member of your company? So you want board members who are really going to be deeply invested and care about you and your success and become prepared and everything else. So pick those kind of board members. Okay. The rest of the team. You need auditors, lawyers as part of it.
We picked BDO. One of the things I learned is we had an auditing firm. You know what? You can't have just any auditing firm when you go public. You have to have a PCAOB auditing firm. There are only certain auditing firms that do that. So You have to pick one. Gunderson Detmer was our lawyers. Loved them. They did a great job with us.
Certain lawyers have gone through the process of taking companies public. They have to have done that for this part of it. I also really loved Third Creek Advisors. Adam, he's an IPO advisor. He helped us learn a lot of this stuff.
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Chapter 5: How does the IPO process differ for bootstrapped companies?
He was awesome. I totally recommend him if you're going down this process. Okay, so that's the team, right? So the inside team, the bankers, the lawyers, the accountants, et cetera. Building resilience. So like everything, and like many of you probably experience day to day, Something goes wrong all the time, right? So in our case, a few of the things that went wrong.
The syndicate of banks collapsed. We had to redo the syndicate. We had a key board member that had to leave during the IPO process. One of our key partners who was involved in our IPO roadshow launched a competitor like a week before we were going public. Wait, what?
The SEC, the person who was in charge of reviewing our S-1 document, after years and years and years at the SEC, leaves and retires midway from the SEC during the process. Disappearing banks. No, this is not SVB. This was a couple years ago. One of our banks decided midway through the process, you know what, we don't want to be in technology anymore. We're getting out of the tech space. What?
Stuff's going to come up. You have to keep kind of plowing forward. Okay, executing. So the actual process, you've got your S1, you've reframed your story, you've got your team, you've got your banks, you've got all that. Testing the waters. In 2012, the JOBS Act allowed companies to file confidentially and talk to investors about the process of going public. Yay.
So the banks said, hey, this is testing the waters. You're just kind of getting feedback and everything else. Bullshit. Testing the waters, you're talking to investors. And when you talk to the investors, if those investors don't come back and tell the banks, hey, we're really excited about investing in this, the banks go, eh, I don't think there's an IPO here to be done.
So you're not just getting feedback. This is a real, real trial run, kind of like the last speaker said about whenever you're talking to VCs, it's not just coffee. Same thing with this process. The roadshow itself. So this is a screenshot of the S1, most of the pages, not all of them.
The key thing with the roadshow is you've got to convert this, you know, 150 pages of S1 document into something that is a compelling story and that you can tell to investors in something like 20 to 30 minutes. It's like a lot of other pitches. You have to convince them that the money they're going to give you means you're going to grow and perform faster.
one of the differences potentially is that that story they're going to follow up on every single quarter and go, hey, you told me this story, how's it going? Then you get to ring the bell. By the way, it's really fun. In Times Square, you get to actually point the button. I don't think it's actually connected to anything, but it's fun. They have the whole pop thing and everything.
I'm pretty sure it's not connected to anything, because if it were, then if you missed the button, which you do practice, by the way, the market wouldn't close on time, and that's probably not what they're going to let happen. But there's a whole process in picking the day after the brochure, you have to decide who are you actually going to sell your shares to.
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