Sharon K. Gillenwater is a SaaS startup advisor, mentor, and coach for aspiring tech entrepreneurs. As a tech startup founder and executive, she built, scaled, and sold Boardroom Insiders — an award-winning Inc. 5000 SaaS business intelligence platform — for $25 million in 2022. Sharon recounts this journey in her book Scaling With Soul. After gaining experience in the tech and marketing space in San Francisco, she became an independent consultant working for major tech companies, including Cisco, Microsoft, Oracle, Adobe, Sun Microsystems, and Google.
Here’s a glimpse of what you’ll learn:
- [0:00] SaaS startup founder Sharon K. Gillenwater on selling a bootstrapped company
- [5:15] Sharon recounts her company’s strategic sale
- [8:52] The challenges Sharon faced when building her first venture and how they shaped her future endeavors
- [14:10] How Sharon transitioned out of a failed venture following the dot-com bust
- [24:32] What is bootstrapping, and how does it differ from venture capital?
- [27:41] Sharon’s transition from a tech consultant to a SaaS business owner
- [37:49] Evaluating timing and market conditions during a company sale
- [42:53] The pivotal moment when Sharon closed on selling her business
- [49:16] How to ensure equal shares during VC-backed sales
- [54:47] Strategies for integrating your team into an exit
In this episode…
Founding a business with investments from venture capital may make the process easier initially, but when it comes time to sell the company, you may not receive your fair share of the equity. How can bootstrapping your company lead to greater returns upon exiting?
SaaS advisor and founder Sharon K. Gillenwater founded her VC-backed email newsletter company during the peak of the dot-com bubble. When the bubble burst, her investors dropped her business as a portfolio company despite Sharon’s attempts to restructure the business model. With this valuable lesson, she bootstrapped her next company, scaling it fast until she was approached by a private equity firm that offered to purchase the business. The exit process was grueling, but Sharon walked away with $9 million after a final sale of $25 million, a significantly higher personal return than if her company had been backed by VC. Bootstrapping your business allows you more control over each step of the process, from scaling to selling.
Join Rolando Rosas and Dave Kelly in the latest episode of What The Teck? as they interview SaaS startup advisor and founder Sharon K. Gillenwater about selling her bootstrapped tech company. Sharon discusses the rising number of bootstrapped tech companies, how bootstrapping differs from venture capital, and how to integrate your team into an exit by offering them a portion of the equity.
Resources mentioned in this episode:
- Rolando Rosas on LinkedIn
- Dave Kelly on LinkedIn
- Global Teck Worldwide
- Circuit Loops
- Sharon K. Gillenwater: Website | LinkedIn | TikTok
- Scaling With Soul: How I Built and Sold a $25 Million Tech Company Without Being an A**hole by Sharon K. Gillenwater
Quotable Moments:
- “What goes up has to come down at some point.”
- “It’s like hiring a realtor, but for your business.”
- “We’ve got something here, plus reaching, getting close to that $5 million in ARR number; we knew that was kind of a magical number.”
- “People are afraid of looking stupid, and you’ve just got to push through and make sure you understand every single detail in plain English.”
- “I had a dream of building and selling something. But I didn’t have the right mindset.”
Action Steps:
- Review the sale of a company with an M&A banker to gauge competition: This ensures you get a fair valuation and deal terms by generating interest from multiple buyers.
- Seek legal advice before entering into venture capital agreements: This helps you thoroughly understand terms like preferred stock and equity dilution to avoid surprises down the line.
- Determine the best time for successful exits or investments: Continuously reassess market conditions to optimize opportunities.
- Bootstrap your business if you can: You will have ultimate control and greater personal financial outcomes when you sell or exit the business.
- Manage proceeds from an exit responsibly: Focusing on debt repayment and sustainable living ensures long-term financial security.
Sponsor for this episode…
This episode is brought to you by Global Teck Worldwide.
We are a full-service online retailer of professional headsets, webcams, and speaker phones from top manufacturers.
Since 2002, Global Teck Worldwide has provided affordable, high-quality communications equipment and customized telecommunications services to organizations of all sizes.
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Episode Transcript
Sharon K. Gillenwater 0:02
While I was in the air, I sold my company for 25 million and ten million hit my bank account. It was wild.
Intro 0:11
We’ll be experiencing some turbulence. Sharon K Gillenwater is a tech startup founder who built and sold boardroom insiders and is now on a mission to educate entrepreneurs with her book, Scaling with Soul: How I Built and Sold a $25 Million Tech Company Without Being an Asshole,
Sharon K. Gillenwater 0:30
you’re not going to outsmart the VCs when it comes to financing your company, you’re just not they’re in it to make money. They don’t care about your business. They don’t care about your customers. They care about the money. That’s the business they’re in. It’s 1999 it was called fidget.com I bootstrapped it for a while. Then in April of 2000 when the NASDAQ had already started its plummet to the bottom, we were able to raise $3 million in venture capital, but the firm took a majority stake. Which wasn’t a great idea. They said, all those in favor of dissolving fidget today, say, I, I thought, well, we had a deal. So it’s almost 10 years later. It’s a new era, right? I was working with all the biggest tech companies, I literally quit a $300,000 a year gig because somebody asked me
Rolando Rosas 1:29
the red and the blue pill. One path leads you down the VC path with the other path strictly bootstrapping.
Sharon K. Gillenwater 1:36
There’s this myth that you have to raise venture capital, and what a lot of people don’t talk about is
Rolando Rosas 1:47
welcome to What The Teck? your gateway to business strategies and tech secrets shaping today’s workplace. You know, Dave, startups face an uphill battle in the environment today when it comes to raising capital, bootstrapping and successfully exiting the company, and I’m looking forward to our conversation today with Sharon 100%
Dave Kelly 2:10
you know, I’ve learned a lot just doing our prep session for this. We have a lot of questions planned, and I’m ready to learn, man, for sure.
Rolando Rosas 2:18
All right, so let’s get right to it. Let’s welcome to the podcast. Sharon K Gillenwater, how are you?
Sharon K. Gillenwater 2:28
I’m great. Thanks so much for having me. Well, I
Rolando Rosas 2:31
am glad you have come on. There’s so much to know and learn when it comes to running a company, exiting a company. And you know, what does that look like? And I know that one of the things that caught my attention, I happened to be on Tiktok, and you were talking about your company and your journey, and that you had recently sold your company. But I want you to tell that story about selling your company and how much you sold it for. Well,
Sharon K. Gillenwater 2:59
I decided to sell in 2021 because I got a call from a private equity firm that I had casual discussions with, and they said, you know, how’s it going over there? And I said, Well, we’re just keeping our heads down running the company. We’re having a good time, and things are going well. And they said, Well, that’s too bad, because we could give you a $48 million term sheet today. Whoa, and that’s, that’s the first time anyone had thrown out a number or said that they wanted to proceed with a potential sale of the business. So I had to take a breath, and I turned to my business partner, and I said, you know, we’ve, we’ve got to think about this, because he and I were really worried about the timing. Our customers were concentrated in tech, and Tech had been flying high for a number of years. And you know, what goes up has to come down at some point. And so I called my advisor, because I didn’t know anything about selling a company I had, but I had an angel investor who was very experienced in deal making, and he said, Well, don’t just negotiate with one potential buyer. He said, If you truly want to explore a sale, you need to hire an M, a banker and run a process. So I went into my business partner’s office and I said, what’s an M, a banker and what’s a process? And he explained it to me that it’s like you this like hiring a realtor, but for your business, they look at your business, they tell you, what’s wrong with it, what could trip you up. They put together a big marketing plan. They reach out to buyers, they generate competition and interest, and then they make sure the transaction closes. And my partner said to me, you have the most to win or lose from this, so you need to run the process, even though I had no experience doing so, and so I did, and about eight months later, we sold the company for 25 million in cash. Nice,
Dave Kelly 4:56
nice, you know, one of, one of the questions I wanted to. Ask was, when you started the company, was an exit strategy, always in the works. And it sounds like it, it wasn’t always in the works. What was the turning point where you decided, You know what, let’s let’s really explore. Let’s explore this, this sale? Well,
Sharon K. Gillenwater 5:15
it was really that phone call from that private equity firm, you notice there’s a big difference between 48,000,020 5 million, yes and yeah. So I learned a lot in terms of valuations and how PE firms will just throw out some crazy valuation to get you interested. And then once you start going through the process and through through due diligence, they tend to chip away, chip away, chip away. And then you find out in terms that the deal terms are not all cash. It might be, you know, a portion of cash, and then some incentives for getting to a certain level later, or stock or something like that. So what I learned is that an all cash offer, even though it’s at a lower valuation, is worth a lot. But when I first started the business, to answer the first part of your question, I had a dream of selling it and building it and selling something. But I didn’t have the right mindset. I didn’t have the confidence. I assumed it wasn’t going to go anywhere. And so I did all kinds of things in the beginning that were mistakes that you wouldn’t do if you were truly believing you were setting up a business to run and sell. Partner came on two years later, after I started the business, and we agreed from the beginning that that was our goal, but we just didn’t know if we could pull it off. And the first few years with him in place, especially, were really rough. And so, you know, we we just weren’t confident that we could get there, but we were confident that we could get to the point where we would have a nice business that was generating a lot of cash, and so, you know, we didn’t know what was going to happen. But those, those frequent calls from private equity firms were what made us think like, well, we we’ve got something here, plus reaching, getting close to that 5 million in ARR number, we knew that was kind of a magical number when it turned it comes to terms with being considered for a purchase,
Rolando Rosas 7:30
is that the bar, you know, if you’re if you’re a company, and you’re aspiring to get purchased or catch the eye of some people with a lot of cash, you think that that $5 million a year annual recurring revenue is where you have to be. Really
Sharon K. Gillenwater 7:44
depends on the state of the market. When we were in a real a booming market, like before the pandemic, 2019 what we were hearing was it was 10 million. But then after 2020 when a lot of cash did not get deployed into deals because of the pandemic, companies in 2021 firms started looking what they call down market, at companies with less revenue. So then 5 million was suddenly the number, right? So it’s, it really depends on the market conditions.
Rolando Rosas 8:22
Well, you know, one of the things that when we’re talking about market, I remember you not had the chance to talk about a little bit about this earlier, and the market goes up and down, and your first venture had a very different outcome. And when you started your entrepreneurial journey, and you learned of ropes, of what it’s like in some of the pitfalls. Share with me and our audience what it was like when you started that first venture, because it didn’t go so well. Yeah. So
Sharon K. Gillenwater 8:52
I started a an email newsletter company in 1999 and it was called fidget.com information for restless minds, was our tagline. And email newsletters were kind of a burgeoning thing then, and so we, I bootstrapped it for a while. Had just a little bit of money from the sale of a domain name, and then in April of 2000 when the NASDAQ had already started its plummet. Plummet to the bottom. We were able to raise $3 million in venture capital, but they The company took the firm, took a majority stake, which wasn’t a great idea, and they were also an incubator, which means they handled our accounting and our legal and HR and all those things.
Rolando Rosas 9:42
And is that common? Just just as a point of reference here, for folks that are not familiar with incubators, in my brain, because I’ve not been through an incubator, I thought incubator maybe just had an office. You shared it, shared computers and all that. But it sounds like they do way more than
Sharon K. Gillenwater 9:56
that. Back in the 90s, they did it. Was, I think, more common that it than it is now. But yeah, they might have an office in our case, we were just all virtual until we raised that money. And they really their pitch to you is, you’re an entrepreneur, you don’t want to do accounting or finance or legal or all of these things. Let us take that off your plate. We’ll have a majority stake in the business, and you can focus on running the business. So it sounded great to me, especially since I had been doing all of those things. You know, I was always screwing up our accounting, because I’m not an accountant. So, and furthermore, I find it extremely boring. So yeah, it sounded great to me to have that, all that taken off our plate, but it made it that much easier for them to a not fully fund what they had committed to so they never put that full 3 million in our bank account, allowing us to benefit from interest
Rolando Rosas 10:55
unbeknownst to you or or were you unbeknownst,
Sharon K. Gillenwater 10:59
unbeknownst to us? Yeah, well, the whole thing from start to finish. It was April to November, when they kind of, you know, imploded our company because they had a majority stake, and so they could vote to do that. But, you know, then they also knew what bills we had and what had already been paid, and they wouldn’t tell us. So when it came to negotiating a settlement, when they basically told us we’re we’re pulling out of this commitment, we didn’t know how much we owed or what had been paid or not paid. So that was a difficult position to be in. So it was, it was a very it was a terrible experience. And so when I got to the point of starting boardroom insiders. I was determined to not take money from someone I didn’t know well or trust. Is
Dave Kelly 11:49
that a common? Is that a common? I want to call it a trick. It almost, it almost sounds like they weren’t completely honest. They were telling you they want to bring you all this value. They can handle a lot of these things that you just said where you weren’t good at, or you weren’t so interested in, they were withholding some money. You know, is that? Is that a common trap? No,
Sharon K. Gillenwater 12:12
I don’t, I don’t think so. I mean, this firm, it all started out great. They were people who were ex Disney, people who had built Disney’s first online properties. You know, it was 1999 so the internet was very new. It was pre, almost, maybe pre Google. I can’t remember, but no, that what happened. What you know, when there’s a when there’s a crash or a crisis, people show their true colors, and that’s what happened. It was a very companies were imploding, right? And left dot coms. They called it the dot bomb for a reason, right? And so what happened is they their CEO got fired, and they brought in a new CEO who only wanted to invest in biotech companies. And we were one of maybe three content companies that they were invested in, and I don’t know what happened with the other two, but they just wanted out. They wanted to flush us out of their portfolio. And in fact, this company went on to become, and still is, one of the biggest patent trolls in the United States. So they pivoted, you know, after they got rid of us, they pivoted to patent trolling, specifically around streaming technologies, and they went after porn sites. So this is who we were dealing with. But you know, that was not the original team that we signed up to work with. So it was just, you know, when it when we raised the money, despite the fact that the crash was happening. We thought we were lucky, but it was really unlucky, because had I not raised the money, I know, I could have kept bootstrapping that company. It was very lean and pretty easy to run just on my own with some contractors. So, you know, lesson learned
Rolando Rosas 13:59
and use, I think you’d said to me that you got in very uncomfortable call one day from them, pulled roped you into a meeting, and then what happened next?
Sharon K. Gillenwater 14:10
So they had been stalling while they planned this whole thing that they were, you know, getting out, they had been stalling, and so what they told us was, you need to come up with a new business plan. And we scheduled a teleconference for a certain date a couple weeks out. And so my partner and I worked on that business plan. And you know, we couldn’t pivot to biotech. We were a content company. So the plan we put together just involved accelerating our revenue growth, being more aggressive to grow our revenue in the short term. And so we got on the phone on the appointed day, and we were prepared to present our new plan, and without anything else, they said, We. All those in favor of dissolving fidget today, say I, and there were three eyes on their end and two nays on our end, and that was it. And they hung up. And then directly they just pretty much, yeah,
Rolando Rosas 15:12
oh my god. Directly
Sharon K. Gillenwater 15:14
after that, there was a knock on our office door, and there was a process server, and both my partner and I were presented with papers saying that they were suing us for fraud. And to add insult to injury, they had written, you know, they write physical descriptions of you on the papers for the process server. And to demoralize us, they wrote pudgy on my partner’s paperwork, and they wrote 40 ish on mine, and I was only 35
Rolando Rosas 15:44
Oh, what an insult. What? That’s an insult, not even demoralized, but an insult
Sharon K. Gillenwater 15:50
And then after that, one of their partners flew in from LA and uh, took me and my partner upstairs in the conference room and said, We’ll give you each 100 grand, or we’ll give three weeks severance to all the employees. And so we, we chose the severance. I just thought that was slimy, like we’ll give you some money to screw over all your employees. You just
Rolando Rosas 16:18
send them off, you know, kick them off into the street, to the curb, yeah.
Sharon K. Gillenwater 16:23
So, you know, they were not really ethical people. They were playing hardball situation.
Rolando Rosas 16:31
Like, you get that essentially, that happens. They hang up on you. What is that like? Like, you’re on the other line. You’re like, what just happened? Are you in shock? What was going on in your mind?
Sharon K. Gillenwater 16:43
Yeah, we were, we were in shock, and we we had an open office, so we told everybody immediately what had happened, and then we knew we were all going to be laid off that day because they told us we’re flying up. And we started looking around the office, and I realized all of the desks, the chairs, the computers, the swag, the beer and wine, everything we had in our office, we we bought before we took their investment. So I didn’t know if they were going to come in and try to take everything away. So I just told everybody, like, start putting all this stuff in your cars and just take
Rolando Rosas 17:25
it because take it all home. I called
Sharon K. Gillenwater 17:29
my husband. We had a big station wagon, and we just lived, like, a mile away, and I’m like, get the car down here. We just took everything out of the office because I didn’t know if people were going to be offered severance, or, you know what the deal was going to be. So I wanted everyone to just get away with as much stuff as they could, equipment, swag, booze, whatever
Rolando Rosas 17:51
we had. Can I find the strength? Because I’m I put myself in your shoes here, when, when you get that news, you know, it’s like an anvil just dropped on your head, and it’s probably scary, even frightening in some ways, when something like that. This is some seriously bad news. I mean, there’s no way to put it, no way to sugarcoat it. What’s your mind? You talk about mindset. What’s your mindset after that? I mean, you’re telling people, giving instructions, but I’m sure in the back of your head you had to be like, wanting to cry. I would want to cry. I’d be crying all day long.
Sharon K. Gillenwater 18:27
I didn’t cry for quite some time. I was just in action mode, and I thought, well, we had a deal, you know, like, what’s how do we hold them to what they promised? So I was first thing I did was get on the phone with our lawyer and set up an appointment with him. I really top of mind at that moment where the employees, they’re not going to have jobs. Are they going to get severance? Can they file for unemployment like how? Because some of these people had just been hired a couple of months earlier, and so I was really thinking about them, and I knew I would be fine. I would land on my feet, and I thought maybe even the company could continue. So there were lots of things going through my mind. I thought maybe I can bootstrap this thing. But Ashley, what happens when you take funding like that is your funder expects you to spend the money and scale quickly. So we had signed annual contracts for like a server hosting company. We had signed a lease you commit to a lot of big expenses that then I had to unwind, and the easiest way to unwind it was to go out of business. Otherwise, I’d have to keep those commitments. So I did spend a few months unwinding the business, probably like four months, and that’s when I was really angry and sad and probably. Frustrated that it just was not just what they did, it was they violated the contract and they then they accused us of fraud, which was a complete lie. So I had a hard time with that. I was very frustrated that these bad people got away with what they did that
Rolando Rosas 20:20
can’t that has to leave a sour taste in your mouth, right? You’re you’ve poured a lot of energy love. You got your team, right, as well as as folks that are outside your team, that are supporting you, you’re unwinding the business. How do you move from the that frustration and that anger, where you, I’m sure you want to do something like you, motherfucker, you want to, you know, pick up the phone and tell them not gonna go anywhere, right at this point, where’s the point where you’re like, all right, I’m moving on.
Sharon K. Gillenwater 20:53
Well, it was easy, because I was pregnant at the time, so I just had a baby,
Rolando Rosas 20:59
things like that, yeah, yeah, but
Sharon K. Gillenwater 21:01
I was very angry during that pregnancy, and I was worried it would affect the baby. I mean, there were times when I would lie on my bed and just beat my the mattress with my fists and scream like a toddler, because I was so frustrated, because I as a person, am very committed to justice and fairness, and it just blows my mind when somebody does something that’s so wrong and blatant and there’s nothing you can do about it. So I did have a lot of anger and frustration. But you know, once you have a baby that there’s you’ve got to tend to the baby, you can’t you don’t even have time or energy to think about anything else. So, you know, I let it go. And honestly, I for I almost forgot about it when I’ve been on Tiktok and when I’m on podcasts and things, a lot of times I don’t even mention that I had another startup because I’ve forgotten, and to the point where people ask me, oh, have you ever raised venture capital? And I say no, and I’m like, oh, yeah, I did back at night. You know, it’s, it’s, it’s a distant memory, but I’ve been talking about it a lot recently, and there is a chapter in my book about
Rolando Rosas 22:19
about fidget Wow. Well, I know that. You know, startups don’t always end the way you would like it to, and that didn’t, necessarily, obviously, didn’t go the way you want, especially when you have people that are fraudsters. In this case, you know, withholding money or not paying and you know the way they ended it. It certainly could have gone a lot better. And tell me about once you you’re able to move past that, you forgot it. Now you’re on to your next thing where you know you’re maybe I’m going to do this differently. What was that mindset as you’re, you’re, you’re you’re past that you have your baby. How do you move forward into the next gig?
Sharon K. Gillenwater 23:04
So it’s almost 10 years later. I mean, I did some other stuff in there, in between consulting and the worst job I’ve ever had, which is another story, and it’s a new era, right? There are digital tools that make it easier to start a business. It still wasn’t like it is now. It was still difficult, but I knew, I realized, in retrospect, that there was so much I could do bootstrapping from my home with very little money. There was Legal Zoom that was new, right? I could set up all of my business documentation on LegalZoom. I had more contacts, so there were a lot of things I could do to, you know, get a logo together and a website together very inexpensively, because I had all these contacts who also, you know, had been working in the business for about a decade. And so it was easier, and you could do it more cost effectively, so the obstacles were lower. And so I was determined to not take any funding for as long as I could, and I was able to do that.
Rolando Rosas 24:14
And so you started your next venture, bootstrapping, right? Yes. And for those that are have no idea, and maybe they’re in their 20s or 30s, just just explain what bootstrapping is, so that people can have a juxtaposition on bootstrapping
Sharon K. Gillenwater 24:32
versus VC. Yeah. Well, there are many aspects to bootstrapping, and the first is, you do everything yourself as an entrepreneur in that initial stage of the business setup, because you can you there are all these digital tools where you can do a lot of things to set up your business without having to hire experts or hire a vendor. And then once you get the business set up, bootstrappers use. Either their own personal resources or use, hopefully, the revenue coming in to fund their business. So you are on a slower growth trajectory, because your investments in the business really is dependent on your own personal resources or the revenue that’s coming into the business from your first few customers, right? And at some point, bootstrappers might take some friends and family money or angel money. So I did that. I took some angel money. But throughout the
Rolando Rosas 25:35
interview, what’s angel money for? Again, for for those that admit that are hearing this for the first time, they say, Okay, gotcha bootstrap check angel money. That sounds like angel food. Is it something coming manna, coming down from heaven? Or what?
Sharon K. Gillenwater 25:47
Well, it can seem like that. It seemed like that to me. Um, angel money usually will come from someone you know, or you know someone one degree separated, who hears about your business. Angels are rich people who enjoy taking risks on small companies, and they’ll make a bet on your business by giving you, you know, it could be anywhere from $5,000 to maybe 500,000 I would think is the range that most angel money is. In my case, I got a check for 125,000 in 2008 and this is from a personal friend who had just sold his comp, his first company, and was suddenly very wealthy. And I was speaking to him one day, telling him what I was doing. And he really liked the idea for boardroom insiders. He liked the revenue model, and he said, You should quit your consulting and do this full time. And I said, Well, you know, I don’t have the money to build the proper database, because then you still did have to hire developers and, you know, database build with a website on the front end of it could it was, you know, 25 to $50,000 even back in 2008 so he said, Well, I’ll write you a check today. So he wrote me a check for 100 125,000 and the only thing he asked was that he be able to maintain 10% of the company. So he said, Look, if you take more money later, I’ll kick in some more, because I want to stay at 10% and so I took that money. How do you
Rolando Rosas 27:26
feel that at that time? So now you come, you know, 2008 a couple years removed from being burned, this guy’s only asking for 10% were you like, okay, I can do that. Or we’re like, Hmm, what’s behind he’s only wanting 10%
Sharon K. Gillenwater 27:41
I mean, I thought it was a great valuation for something that really wasn’t, you know, operating yet with customers. So I, I took it and I thought I didn’t really understand why he wanted to maintain that 10, 10% and in fact, later he forgot, you know, because it was, it was 14 years, that he was waiting for his return on an investment, and he went off and sold other companies, and now he’s the CEO of a publicly held company. So a lot happened in his life that he wasn’t worried about my little company over on the side, which is exactly what you want from your angel. You don’t want someone who’s calling you every week going on, what’s going on, when are you going to sell? And you also want someone who’s a seasoned entrepreneur who knows exactly what you’re going through, and they’ll take your call and offer advice when you ask for it, but otherwise they just leave you alone. And so that’s what he did,
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