VC Free — How We Bootstrapped FusionAuth To Profitability

FusionAuth operates differently from similar companies in the CIAM market. In today’s startup landscape, our position is distinct — we’re profitable, we’re doubling our revenue year to year, and we’re adding new logos to our customer roster every day. Oh, and we’ve done so without taking a single cent of outside funding.

We know, that’s not the story that you expected to hear. But it’s a point of pride for us. Being “VC Free”, if you will, has opened so many doors that we never would have been able to access had we taken the traditional route. Making all of our own financial decisions has also saved us from sticky situations, such as the collapse of Silicon Valley Bank.

It’s become almost commonplace to hear about startup success stories. Why is that, when the reality is that the majority still fail? If we were to guess, there are a few reasons:

First, it’s good for the landscape when we hear about successes rather than the multitude of failures. Second, there are more outlets carrying these stories today than ever before. Finally, (and maybe the biggest reason of all) investors benefit from having their names attached to successful companies. This is in no small part because those investors make money on the company’s success. That increase in visibility then leads to even more investment opportunities, effectively building a flywheel of financial success.

In short, the startup world does a great job of selling the dream. We’re not here to do that. We’re here to tell you how things actually worked for us. Before diving into the details of our own journey, it’s essential to differentiate between the glamor and the reality.

The glamor versus the reality

There is a certain glamor that exists within the startup world. Late nights, fueled by ramen and caffeine, grinding away to solve a problem. Sleeping on couches in a rented office space, waiting for some investor to call you back, hoping that they share your vision.

And then one day it happens. You get the signed term sheet, the deposits flow into the bank, and you’re on board the rocket ship. Before you know it, you’re the next “unicorn” with a billion dollar valuation, and your company name gracing all the tech outlets.

It’s an appealing scene for a certain breed of person. They love the grind and that slim chance of success. But the reality is, oftentimes, much different.

For most founders, they work on their dream in their spare time. They give up an outside life, often selling off their belongings to fund their idea. Family and friends start to wonder about their mental and physical health. If they’re lucky, someone agrees to give them a little bit of money on an idea. But in most cases, that money never comes until there’s a proven market, an MVP, and a founding team that has given up everything they had.

Reality usually isn’t sexy. It’s long nights, hard days, and juggling money to figure out how to pay your bills. For FusionAuth, the story begins with an idea that didn’t have anything to do with authentication. In fact, our genesis story had to do with curse words.

Profanity filters, video games, and the beginning

Way back in 2005, our founder and CEO Brian Pontarelli had big dreams of a better web including a new web protocol, a server, and a browser that would power it. But, as is often the case, the idea never came to reality. The market wasn’t there; everyone was okay with HTTP. It didn’t make sense to continue development when nobody wanted the product. Of course, it didn’t help that the staid names in the browser world were vehemently against anything new coming to market.

By 2006, Brian had started work on a Java library that would filter profanity, obscenities, and anything else you fed it through text files of words and phrases. By 2007, the Inversoft Profanity Filter was available to developers who wanted to add filtering to their Java application. It made a little money, but it wasn’t enough to grow and Brian wasn’t yet in a position to work on the project full-time.

Then, a full two years after building the first library, Gazillion Entertainment reached out to work with Inversoft.

Gazillion published video games. They were the studio behind Marvel Heroes, a massively multiplayer online roleplaying game (MMORPG) released in 2013. They knew that they would need language moderation for their platform, and they wanted Inversoft to build it, so Brian went full-time into Inversoft. We didn’t know it then, but that partnership would be the first step toward building FusionAuth today. This profanity filter would become CleanSpeak. Inversoft released the 1.0 version in 2009, the same year that Gazillion inked their 10-year deal to develop Marvel Entertainment games. It was around this time that, with paying customers and tracking toward $1 million in revenue, Brian looked at Techstars.

Techstars, investments, and going VC free

For those unfamiliar, Techstars is a startup accelerator that originated in Boulder, Colorado in 2006 and has since become one of the top accelerators globally. Founded by David Cohen, Brad Feld, David Brown, and Jared Polis, Techstars has played a significant role in nurturing and promoting entrepreneurship across the world.

Techstars is a three-month program of mentorship, seed funding, office space, and access to the vast Techstars network. But beyond the seed funding, Techstars often invests in follow-on rounds for its portfolio companies.

More than the money (Techstars gave $10,000 per founder, in exchange for a percentage ownership of your company), Brian wanted access to the Techstars network. He knew that there would be more business knowledge and connections than he could ever hope to find outside of the network. But he also knew that he would be balancing the allure of the network and cash against the constraints of having VCs involved in his business.

Techstars didn’t happen. One of the cofounders told Brian that they couldn’t get investors excited about the business.

If there is a silver lining to getting turned down by Techstars, it’s that it gave Brian the opportunity to step back and take a better look at the VC-funded startup landscape.

“I saw all these other people getting funded. I saw what it did and how beholden they are the VCs who are paying for everything. I saw what they needed to do in order to grow and it just really turned me off from it.”

Through the process, Brian did speak to a few VCs, including some of the bigger names in the Denver tech landscape. The reality of the profanity filter business around CleanSpeak was that getting to 10x growth in the expected three to five years wasn’t going to happen.

Evolution & strategy

With CleanSpeak chugging along, the team spent a few years pushing and trying to continue to grow. We hired marketing, sales, and engineers to help build the company. Unfortunately, the market for content moderation didn’t really exist yet. This meant CleanSpeak’s overall opportunity was relatively constrained.

After analyzing the business, Brian decided that it was time for a change. We needed to build a new product in a larger market, but we wanted it to be in a similar space as CleanSpeak. We kicked around a bunch of ideas including building a game, but eventually landed on a forum. The idea of a forum came from many of our CleanSpeak customers complaining about their existing forum software. Obviously there was a gap in the industry and we thought we could fill it.

At the same time, we had to reduce the size of our team to reduce our burn rate. This was challenging, but many of the team members weren’t interested in building a forum, so it was a natural transition to help them move on.

Fast forward into 2014, the core team that remained started building out Inversoft’s next product, an API-first forum platform called Gather. This would leverage the gaming connections that CleanSpeak had fostered. All the while, the remaining three employees supported CleanSpeak so that it could continue to pay the bills.

Unfortunately, Gather was a flop. CleanSpeak customers didn’t want to switch because switching is expensive and risky. New customers were hard to find because Gather was years behind existing forums in terms of features.

While Gather was never a successful product, it had one critical impact on the company. We built Gather to integrate with a customer’s existing login. This meant that we had to build our own login system so that we could test Gather. This testing login tool would eventually become its own product, and we named it Passport!

Okay, we know it’s a horrible name. It’s impossible to search, and it brought back images of Microsoft logins, but we picked the name nonetheless.

The market for authentication and authorization was far different in those days. Enterprise sales and long lead times were the status quo. Passport’s initial features were based on feedback from CleanSpeak customers, including Pokemon and expert developers. By 2015, Inversoft put Gather on hold and released Passport 1.0 as a public beta product.

The realization of operating lean and the benefits that it provided were paramount to our early success with Passport. We knew when to pivot, and when to refocus our resources. By not having outside funding, we also knew that we had full decision-making capability, all the while CleanSpeak provided financial stability.

After 2 years of building Passport but struggling to have it gain traction in the market, the team made a gamble. We knew we had something special, but the name of the product and how we were marketing it was a disaster. We tried to grow Passport the same way that Ping Identity and others in the market were growing — enterprise sales was our goal, and you had to talk to a salesperson. The only problem was that we couldn’t afford to hire a ton of sales people to compete with Ping and others. In 2018, we decided to flip everything around. We wanted developers to use the product, for free, and make it simple to download.

In September of 2018, Passport was renamed to FusionAuth.

FusionAuth is free to download and run on any infrastructure. You never have to talk to a salesperson to start using FusionAuth. Our full featured Community plan is free today, and free forever. It’s our version of an open-source CIAM solution, which some might call “ free as in beer,” and it’s ready to expand as you grow.

Chronicles of a founder

The allure of venture capital (VC) funding is undeniable. In today’s startup landscape, it often feels like the expected path, with only a handful of companies bootstrapping their way to success. Yet, sometimes, it’s the setbacks that reshape our perspective. For Brian, it was the dual blow of being turned down by Techstars and then witnessing the intricate dance of the VC world firsthand.

That’s not to say the journey has been an easy one. There have been junctures where we faced gut-wrenching decisions: between preserving our team’s structure and safeguarding the company’s financial health. In the tight-knit ecosystem of startups, letting someone go feels like parting ways with a close friend. Yet, there’s a silver lining: realizing that a leaner team can offer better financial agility and resilience.

With a ten-member team, our collective spirit was channeled into expanding CleanSpeak’s reach. But morale plummeted when growth remained stagnant, not just for one year but possibly two. It became evident that Inversoft needed to recalibrate. A trimmed team meant that members could earn a decent wage, decisions became more agile, and operations had fewer hurdles.

Now, was there a dash of serendipity in CleanSpeak’s success story? Absolutely. However, when that business now rakes in profit equivalent to a Series A funding each year, we can’t help but feel that maybe, just maybe, we’ve learned a thing or two about how to run a successful company.

VC free: the allure & the reality

There are a lot of options out there when it comes to how you’ll start a company. Incubators and accelerators, Angel investors, and even VCs who fund early-stage ideas are all on the table. Knowing that you’ll have 18 or 24 months of runway to build and grow is appealing. Paying your bills, and keeping your family fed are even more appealing.

But then there’s the reality that so many companies face. The traditional methods of building a company expect high growth and quick exits.

There isn’t much room left for the 100-year company these days. This is more than a testament to the volatility of today’s business landscape. It’s an insight into the aspirations of contemporary founders. The zeitgeist of the modern entrepreneurial spirit leans towards a quicker payout, a swifter exit, rather than the long-haul vision of building a lasting legacy.

Today’s tech startups are a testament to this shift. Once upon a time, the markets measured a company’s worth by its ability to stand the test of time, to weather market storms and remain resilient. However, in the age of tech unicorns and rapid scalability, there’s an allure to building a company with the express intention of catching the eye of a tech giant, or achieving a lucrative initial public offering (IPO). The endgame? A profitable exit, sometimes within just a few short years of inception.

FusionAuth is in this for the long haul. As we reflect on our journey, FusionAuth’s unique position in the market, free from external financial pressures, has been a pivotal factor in our story.

If you are building a company, our challenge to you is this: embrace adversity. The lows will feel very low. But the highs will be unbeatable. Today, FusionAuth stands tall against well-funded counterparts. We’re nimble in ways that they can’t be, and that helps us to continue to gain market share.

2023 is huge for us. We’re growing at a tremendous rate, especially for a company with seven-figure revenue. We’re excited to announce new offerings, and we’re looking forward to what the future will bring.

If you’re on the bootstrap path, or if you know of communities where people talk about this, I’d love to hear from you. What have you learned? Why did you choose to go VC Free? Shoot me a message and let’s talk.

Originally published at https://fusionauth.io.