How Backblaze Bootstrapped for 15 Years to a $65M ARR Nasdaq IPO in 2021 (SaaS Open Talk by CEO Gleb Budman)

Introduction and Bootstrapping Origins

Gleb Budman

00:00>> Hello. Good morning. Good morning. Good to see you all. Alright. So, my cofounders and I actually we did two companies before. Both of them were venture funded. Both of them were acquired. We 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 took, we said for one year, we're gonna do nothing, in

00:23>> terms of venture funding. There's gonna be no PowerPoints. There's gonna be no no spreadsheets. There's gonna be no pitches. There's gonna focus on product, focus on customers, see how it goes. So we, we did that for fifteen years. We took the company public, in 2021. I'm gonna try to share fifteen years'worth of history in twenty minutes, or less here. So this is what it started like. Probably what a lot of you guys, started like. Right?

00:48>> Five five guys, you know, one bedroom apartment. The the the guys the tall guy standing in the in the in the room there in the blue shirt, that's his one bedroom apartment. He's living in the 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 it's, and we didn't have enough

From One-Bedroom Apartment to Nasdaq Bell

Gleb Budman

01:09>> 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 the whole shindig. So, you know, when we started the company, we said, hey. You know, what are we gonna

01:34>> do? Are we gonna run this forever as a private company? Are we going to, raise funding? Are we gonna sell the company like we did the last two? Are we gonna 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're a kid. You know, sure, yeah, yeah, maybe someday we'll fit into these. Right? It was still kind of a fiction, right?

Why Bootstrapping Is a Path to IPO

Gleb Budman

01:57>> And so I'm going to share what kind of 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, things I want you to walk away with is it's possible to go public, right? And I think for, at different stages, it doesn't feel that possible, right? Okay. So, you know, we're

02:24>> gonna talk about how you decide, how you prepare, how do you actually execute on that process. This is our our path to their revenue wise. And so, you know, if you look over here, let's say, you know, 2014, we were at about $10,000,000 in in revenue. You know, many of you are probably, you know, many of you are are beyond this. Some of you are beyond this. Some of you are at the beginning of this. Some

02:47>> of you are in the middle. But, you know, sitting in 2014 with $10,000,000 of revenue, you know, kinda 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 and and we're public. Right? So, the thing to walk away with here is, at the beginning, it's like you're just trying to figure it out. I love

03:07>> the first speaker who was talking about getting to 50 ks of MRR. It's awesome.

The Products: Backup and B2 Cloud Storage

Gleb Budman

03:13>> At that kind of growth rate, it's only a number of years before being public is actually a feasible path. Okay. So what do we do? We started off selling computer backup, so backing up your laptops and desktops, $7 a totally unlimited. We do that for individuals. We do that for businesses. Super simple, and it takes everything. A bunch of, of our customers started coming to us and saying, hey. I love you for your backup service, but

03:36>> I and I trust you for all my storage stuff, but I need all these other storage things. Give me access to your platform. So, you know, listening to customers, hearing what they wanted, we built B2, which was our second offering. It's cloud storage as a service. 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

03:57>> of money, make it easier, come check out B2.

04:02>> So deciding. So

Advantages of Building Bootstrapped

Gleb Budman

04:07>> it's it's I think it's a generally, there's this there's a belief that if you're gonna 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. I wanna it's 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

04:28>> that I think it helped us. When we started the company, we were going to use Amazon S3 as the underlying way that the 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 gonna 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

04:47>> it and said, we'll figure it out later. Somehow, we'll figure out how to 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, like, drastically less expensive than Amazon, which we probably would have never done if we had $10,000,000 of cash in the bank on the first day. It also

Blog and PLG as Go-to-Market

Gleb Budman

05:08>> 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

05:34>> blog that was focused on storage, and had about 3,000,000 people a year that started reading it. That drove a lot of people to come and check out the the 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 in

05:58>> the public markets. It's 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. So, you know, and this is kind of the last one, which is like 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 on the

When to Go Public and the $65M ARR IPO

Gleb Budman

06:22>> comment of the when do you actually go? So what all of the, you know, experts that we spoke with said was, you you've got to wait until at minimum minimum you're a 100,000,000 in revenue, and really you should be at 300,000,000 because that's the size 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 that way.

06:46>> But when when we went public, this was the chart that we went out on the roadshow with. Few different numbers on there, but focus on the one that says 65,000,000 of ARR. It was not 300. We still went public. It's you can take the companies public at smaller scales than the banks are leaning into taking companies public because they make a fee on on the amount that you raise. Okay. So what about in terms of costs?

The Cost of Going Public

Gleb Budman

07:13>> So it it is expensive to go public. So, you know, we talk about, know, backblaze cloud storage, really easy, really inexpensive. Going IPO, not easy, not not inexpensive, but it is possible. And so it cost us, you know, 10 to $15,000,000 to take the company public. Kind of a big number. Most of that went to the banks because they take 7% of what you raised, but there are lots of other places where you actually have to

07:41>> spend money. Lawyers, accountants, you know, directors and officers insurance, there's a whole bunch of stuff. So it's expensive, but if you're raising a 100,000,000 and you give away 10,000,000, you know, it's a little bit of the cost of doing business. Okay. When do you do it? So part of the the thing is that when you're actually going public, it's it's when you're you're going to be talking to investors about, if you give us money, we're going

08:05>> to do the following things with it. So you need to have metrics and a story around, this is the right time for you to change that trajectory. For us, it was because B2 cloud storage was growing really fast, and there was this big market for it, and everybody was we had lots of people that were switching off of Amazon Web Services and coming to B2, and we were talking to investors about that. They saw

Preparing: Reframing the Story

Gleb Budman

08:26>> that growth, they said, yep, that makes sense. So thinking about the kind of the story, timing, and the metrics, but you got to start early because it still takes often like two years to actually get ready. Okay. Preparing. So how do you actually do the preparing part of it? So first of all, you have to reframe the story, but not rewrite the story.

08:49>> So one of the things that will happen is when you start down this path, there's a whole machine, bankers and everybody else, that want you to tell a different story than the one that your company actually is. They want you to be a different company because it looks better on a spreadsheet, or it looks better in a pitch. You wanna reframe your story because you're speaking to a different audience. You're not speaking to your customers. You're

09:11>> speaking to investors, but it still has to be the real company. It's the company that you built. So if you have a ton of upsell, then talk about the the amazing ways you upsell. If you don't have a ton of upsell because most of your business is selling to new customers, talk about how you get new customers. Don't tout how you have tons of upsell. Focus on kind of like what is it that makes your company

09:33>> special. Don't don't fit into the rubric that the bankers and everybody else are going to push you into. So this is a is a smidge from our S-1. This is kind of the the left is the starting bits of the outline, and then that's one of the first pages on it. The team. So the you know, this is probably the part that everybody's most set up for, right, which is make sure that your team itself

Building the IPO Team and Board

Gleb Budman

09:56>> running the business is prepared and ready to actually go down this path. It's going to be distracting. It's going take a lot of time. It's not just a finance and accounting thing. That was one of the mistakes we made. We said, oh, we think, you know, this is really going to take be mostly about the finance and accounting teams, but it actually does suck up a lot of the rest of the company to get involved in

10:14>> the whole IPO process. Know that know that upfront, make sure your team is ready for that. Finance. This is on the left, the two little two boxes, that's what our finance team looked like before we started down the path. On the right, that's what our finance team looked after the path. Yeah. Finance is kind of an important part of going public. It takes a lot of people. You have to have a whole structure, processes, systems, people.

10:37>> Yeah. Don't don't think you're gonna go public with a part time CFO. The other part, the syndicate, the banks. So there's a whole art and science of picking the banks that take you public. You you hear about Goldman Sachs and JPMorgan. Those are are appropriate potentially if you are going out and raising a billion dollars in capital. If you are, you know, 50, 60, a $100,000,000 in in revenue, and you're raising a $100,000,000, those banks are going

11:07>> to give you c team if you go with them, and they will drop you at the a second if they have a different opportunity. They're not the right fit. So you have to find the right banks. These are the actual banks in the ordering and everything. There's a whole ton of crazy stories around how you how you pick the banks, but the one thing I'll leave you with is that I didn't make this quote up. Somebody

11:29>> else did, but it resonated with me, which is you date your banker, you marry your analyst. 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 analyst. So start by looking at the analyst, then pick the banks.

11:55>> Okay, other things. Building teams. So the board. We had five founders. The five founders were the board members for twelve years with me. When 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

12:20>> said, oh, I know the you 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 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 gonna give you as a board member of your

12:39>> company? Right? 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 those are the pick those kind of board members. Okay. The other the 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

13:01>> when you go public. You have to have a PCAOB auditing firm. There are only certain auditing firms that are that that do that. So you have to pick one. Gunderson Dettmer was our lawyers. Love them. They did a great job with us.

13:16>> Certain lawyers have gone through the process of taking companies public. They have to be have have done that for this part of it. I also really loved Third Creek Advisors. Adam, he's an IPO adviser. He helped us learn a lot of this stuff. He was awesome. I totally recommend him if he if you're going down this process. Okay. So those are the that's the team. Right? So the inside team, the the bankers, the lawyers, the accountants,

Building Resilience When Things Go Wrong

Gleb Budman

13:39>> and etcetera. 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 during the IPO process. One of our key partners who was involved in our IPO roadshow launched a competitor like a week

14:05>> before we we were going public. Wait. What?

14:10>> The SEC, the person who was in charge of reviewing our S-1 document after years and years and years at the SEC leaves, right, and retires midway from the SEC during the process. Disappearing banks. No. This is not SVB. This was, you know, 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 gonna come

Executing the IPO: Testing the Waters and Roadshow

Gleb Budman

14:34>> up. You have to keep kind of plowing forward. Okay. Executing. So the actual process. You've got your S-1. You've reframed your story. You've got your team. You've got your banks. You got all that.

14:44>> Testing the waters. In 2012, the JOBS Act allowed companies to file confidentially and talk to investors about the process going public. Yay. So the, you know, the banks said, hey. This is testing the waters. You're just kind of getting feedback and everything else. Bullshit. The 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

15:06>> banks go, I don't think that there's an IPO here to be done. So you're not 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 it's it's not just coffee. Same thing with with this process.

15:20>> The road show itself. So this is a screenshot of the S-1, most of the pages, not all of them. Key thing with the road shows, you've got to convert this 150 pages of S-1 document into something that is a compelling story and and two that you can tell to investors in something like twenty to thirty minutes. It's like a lot of other pictures. Have to convince them that the money they're gonna give you means

15:41>> you're going to grow and perform faster. The one of the differences potentially is that the that story, they're gonna follow-up on every single quarter and go, hey. You told me this story. How's it going? Okay. Then you're you get to ring the bell. Whoo. By the way, it's really fun that, you know, 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,

16:05>> they have the whole, like, 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 it on time, and that's probably not what they're gonna what happened. But there's a whole process in picking like, the day of the retro like, the day after the retro, you have to decide who are you actually going to sell

16:29>> your shares to. So you've gone out. You've pitched a whole ton of investors. Some subset of them have said, yes, I'm interested. I would like the following allocation, and there's a whole art and science around. These investors have said I want $20,000,000, and these investors have said I want $5,000,000. Do you give them 5? Do you give them 20? Do you give these 5? Do you give these a million? And and you something that was non

16:52>> intuitive is you want some of the investors who are actually gonna hold for the long term, but you want some investors who are absolutely not going to hold for the long term. And part of the reason you don't want them to hold for the long term is if all of your investors held for long term, there are no shares on the market. No volume. No trade. So it's you actually want a mix of of of types

Life After the IPO Bell

Gleb Budman

17:09>> of investors. Okay. So yay. We went public. You know what happened the day after we went public? The market exploded, and everything went to shit. So you have to get ready for the fact that, you know, the market conditions change, and and when we were on the roadshow, every single solitary conversation was, hey, how can you spend more money to grow faster? That was the only thing anybody cared about. Our very first earnings call, which was

17:36>> like two months later, nobody was asking that. You know what everybody was asking? How can you spend less money so that you can get to cash flow break even faster? Right? You're still building the company, so you got to just kind of focus and make sure that you're continuing to execute on whatever makes sense for your company, being careful not to get too swayed in any direction by what's happening in the public markets. So for us,

18:00>> what that meant was, you know, just continuing to focus on we've got this computer backup business. We're gonna keep continue to sell cloud backup. We've got this B2 business. We're gonna continue to focus on cloud storage. The one of the things that it changed was, you know, we we leaned into the fact that that a lot of customers started saying, how can we save money off of our existing infrastructure? And we're like, hey, you know

18:21>> what? B2 is a great way to do that, and that's how we can continue to execute into that. Okay. So I think that was eighteen and a half minutes of fifteen years going from bootstrapping to IPO. So talking a little bit about why you can bootstrap, why that's a good path to IPO, which most of the banks will be like, no, no, no. You have to raise money.

Closing Thoughts and Blog Resources

Gleb Budman

18:46>> How you prepare for it, how you execute on the IPO. Obviously, there's lots and lots of stuff behind here. I'm starting to write little, blog posts on our backblaze.com/blog going into more detail on each of these things. So if you're interested in these paths, come check out our blog on the various pieces.

19:07>> All right. I'm I'm gonna be here for the rest of the day. Happy to answer questions and and anything at camp. Thank you, guys.