David Hauser on Bootstrapping Grasshopper to a $175M Exit

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Jason Kirby: Welcome back to Fundraising Demystified. Today, I'm excited to introduce a very special guest who's joining me on the show today. David, welcome to the show.

David Hauser: Hey Jason, thanks for having me.

Jason Kirby: David, your background is extensive. I believe you mentioned you raised money in the year 2000 and what that environment was like.

David Hauser: Yeah, so I'll actually step back a little bit because like my first business was like my dad giving me a thousand dollars to buy a computer, right? So like that was really my first experience raising capital.

And it was probably, I don't know, three or $4,000 at the time for a computer like a Pentium two. So I was in high school. So I graduated high school in 2000.

Jason Kirby: Hashtag a great day.

David Hauser: raising capital for a company called Return Path. There was five co-founders, which is super interesting. I was like 18 years old at the time.

And I think one of the co-founders ended up getting an MBA. That was kind of how I got looped in through that network in Boston, and I ended up doing a lot of pitching more on the technical side of things as we were raising capital.

Jason Kirby: How did you get that opportunity? I'm familiar with Return Path. It got pretty sizable. I think they raised a fair amount of money and had a real business. How did 18-year-old David get a seat at the table there?

David Hauser: Yeah, so a good friend of mine, James, was one of the original founders. He built a company called The Square, which is like a college social network. So it sounds a lot like Facebook. It was just way, way earlier.

He had a few other businesses and he said, like, I don't need you to be an intern at these other businesses anymore. I need you to come and work on this thing with me because we're going to raise capital for it. And it was really simple at the beginning. Like people change email addresses. We're going to collect it when you change jobs or move, right? So your alumni, friends, business associates, whatever it is at the time would pay a significant amount of money for that connection.

Jason Kirby: No, it's a fascinating story. It raised nine figures and I think, you know, very interesting business, and also a, you know, great opportunity for a 18 year old to get tapped into.

David Hauser: Yeah, I think though the problem with that is like it took so long to actually transact that I don't know if it was necessarily a great deal for us as founders who were like 18, 19, 20, 21. Like there was a lot of learning in there. And I think the model that we set up, like they did very well over a long period of time, and I'm super proud of them and what they accomplished and the team that was there did very well. Like all of those things are good, but the timeline is what made it hard for us as 18 to 20 year olds.

Jason Kirby: It's a long time to wait for a payday. You decide to go to college. You went to BAPS, Babson, right?

So now you go to college and finish that up. And then I think it was about six years after, seven years later, Grasshopper happens. So that's a long window. Walk the audience through why bootstrapping was your path of choice.

David Hauser: Yeah, I think that it was a more natural path for me, right? Like I don't know what early times it was, like I did a lot of things myself, built the things myself, got customers myself. So I think I was very comfortable with the bootstrapping path and doing the activities myself,

David Hauser: I also didn't necessarily love the lack of ultimate control after having that experience at Return Path. Like I wanted to control my destiny and building Grasshopper, one of the key things through that path of bootstrapping was that we had to be profitable very early on or at least sustainable with the capital we had.

Jason Kirby: Enter Grasshopper and that was an all time motto for many teams to try to build a better business as entrepreneurs. Give me a quick summary of the company and the revenue side and whether you were thinking about moving upmarket at any part. Talk to me about what the product was and did you make the decision to go upmarket?

David Hauser: We did not go upmarket. We focused on SMBs. We looked at our customers and we said, look, this is a product that works for small businesses. We didn't know who the customers were at first, but eventually we learned. And then as we learned more, we grew with them.

We kept it affordable. We added features that made it better for them. And we got to a point where we said, look, we can go to enterprise, but that's a different path. It requires different capital, different constraints, different goals. And I think that we made the decision to stay with the SMB path, which was very different than what some of our competitors like RingCentral and others did. We had totally different outcomes— which is fantastic for them. We had a good outcome for us as well, but it's just a different path. The incentives are different when you take venture capital versus when you bootstrap. Venture is looking for expansion, how do you expand ARPU and all these other pieces, while we were looking at customer acquisition and retention.

Jason Kirby: Interesting perspective. And so timing on that, it sounds like good outcomes, but I'm guessing there's a lot of learnings and attrition along the way in telecom. Was it a hard business and did it stack a lot of nice ARR over time?

David Hauser: It was a really hard business. Lots of learnings and ultimately it was a good exit for us and the team. There are different ways to win here and we chose a way that worked for us.

Jason Kirby: And when it came to, you cause you're looking at your track record and then eventually you guys sold Grasshopper and that exit happened. Did Chargify come out of Grasshopper or did you guys raise money for Chargify?

David Hauser: So it was bootstrapped, but Grasshopper funded it, right? So it's kind of unfair to say bootstrapped. We did later raise some dollars from Mark Cuban, which happy to talk about that process. It was quite interesting.

And that was really the only capital ever raised until we transacted the company. It was a very interesting journey for Chargify without typical funding paths.

Jason Kirby: So yeah, how'd you meet Mark Yubin? How'd you get his money?

David Hauser: So, Mark is a really interesting guy. He invested over two or three emails. He is amazing or someone on his team is amazing in evaluating— at least on like at that time whether you should get funding or not. Like his funding choice was literally, yes, 500,000.

Like there was not a deeper conversation. We gave him some pitch deck things and other pieces. But the reality was he was making a decision at that scale and that decision making process was quite simple and direct.

Jason Kirby: Easy enough. So, and it's funny, we've had actually multiple guests that have done the same thing. Just DM him and get a response. He's more open minded to making investments. He's been very active historically and it's not a correlation to success there.

Jason Kirby: But I want to talk about Vanilla.

Jason Kirby: Vanilla is a company you've founded, you're a CEO, you raised a substantial sum, think, of what, 30 plus million, 40 million?

David Hauser: Yeah, so we raised $42 million in our first kind of two funding rounds, and then we raised another 30, 35 with Insight leading that as well as a bunch of strategic investors.

Jason Kirby: So, I guess walk me through why you started Vanilla and why you chose venture as your path. Where were you at with the business when you decided to raise such a large sum?

David Hauser: Yeah, it was actually a very interesting journey. So a friend of mine started an estate planning business and I started looking at it thinking it was an interesting idea. said, like, I love this, this is something I want to learn about. In my exit, I spent a lot of time learning about my personal estate plan, the different documents, the complexity in those documents. There were some really complex things that I wanted to do. How can I deliver this to others?

Jason Kirby: That becomes a really hard decision when you're like, well, I quit Grasshopper and I'm going to start this new thing and I want to do it right. If I'm going to be founder and CEO of a venture-backed startup what were the proof points that got the checks signed?

David Hauser: Yeah. So the validation points were one, we were able to start selling to bigger customers. There were certain requirements that they had for us to get there. We had to have compliance. We had to have infrastructure. We had to have all of these things in place because we wanted to go and sell to big, big customers. And to get big customers, you have to have proof points. You have to have enterprise readiness. You have to have this software built. Like all of those things have to be in place before you raise large sums of capital.

Jason Kirby: Yeah, I think that's just such a key thing for all founders to remember. What would you call the pre-seed seed? What would you call that round?

David Hauser: was about $14 million.

Jason Kirby: sizable. And where were you guys in terms of stage of the company, like revenue wise?

Jason Kirby: How did you get in the door then, Rob?

David Hauser: So I think that's the difficult thing here, which is having past success matters. Like it feels unfair to some extent because it's like a cheat code, but the reality is that having done it before helps a lot. We had great people on our team who had relationships. They built relationships over a long period of time. So if they call people and say this is legit, it's legit.

Jason Kirby: It sounds like you found, at least when it comes to business, you found a path, at least where you wanted to go.

David Hauser: Yeah, I found a way to find fulfillment in life. And I think that is really important. The question is how do you do that without having a large exit? And it's not about the number; you have to find purpose in what you are doing. You have to find what actually makes you fulfilled, which probably isn't a number. The number is nice, but I think seeing impact and feeling like people appreciate the work you are doing— those are the things that matter. I think you need to first find, how do I show that I feel fulfilled in the work I'm doing?

Jason Kirby: And to add color to the audience, you stepped down as CEO after an incredible period of growth and chose a different role within the company, right? Was that because you didn't want the uncomfortableness of the hyper scale, grow at all cost mode mindset.

David Hauser: I think there was someone better for the company and the trajectory of that company than me. And that's the reality. And that's hard on my own ego sometimes. It's really hard. But like, it's easy to say that today, but that's really hard.

Jason Kirby: So you've stepped down from Vanilla, obviously big cheerleader, still on the board and working on several other things. You mentioned earlier you're now spending time on durable capital strategies and private investments. What are you focusing on there?

David Hauser: Yeah. So I'm thinking very opportunistically, in combination with some partners that I've worked with for a long time. We look for opportunities where there's a long history of value, strong recurring revenue, good margins, and things like that. We want to invest in places where our knowledge and ops background give us an edge.

And then I'll also make direct investments in people. Because my God, the number of deals I see that have a hundred decks. It's just impossible to participate in all of them. There are competitive deals, fast bidding processes, things like that. And the truth is I can't do them all and I want to do the ones that fit our model and where I think I can add value over a long period of time. So fits our model, fits our understanding. And we own a few different assets in the medical space. So again, these are things that have long proven history.

Jason Kirby: And we didn't talk about this, but you've also made a lot of angel investments alongside your entrepreneurial journey. Are you still doing that? How are you thinking about angel checks vs. the private deals you're doing now?

David Hauser: I think a big piece is time. Time is the one thing you can't get more of. And I don't want to write a small check and then not be helpful. So I've tried to narrow the number of things I invest in so that I can really put time into the things that I'm doing. And sometimes that's in emerging markets. Sometimes that's in spaces where I think I can be uniquely helpful.

And for founders I back directly, I want to spend real time with them. I want to be able to get on the phone and talk through whatever issues come up. I want to put my time behind the things I'm doing. So I will give them a capital portion plus my time. So I'm kind of fully vested in their success.

Jason Kirby: That's impressive. That's a huge commitment from being able to put your own time and energy behind the people you believe in and turn down the ones that aren't the right fit. It's just so clear at least that it's portrayed.

I think from any founder that has the ability to get an opportunity in front of you and earn you on their cap table is a fortunate situation.

David Hauser: I mean, and really I do want to be able to give back. Like there was lots of people along my journey that gave me their time and made things possible for me along that journey. So if I can do that again.

Like that should be my number one goal in life outside of, personal accomplishment and other things, right?

Jason Kirby: It's a way to look at it. David, your story is incredible. I really appreciate you taking the time to come on and share it. If someone wanted to reach out to you? What would be the best way for someone to do so?

David Hauser: I'm on LinkedIn under David Hauser and then I'm on Twitter under @dh and my email is david@vanilla.io. Those are the best ways to reach me.

I appreciate that.

Jason Kirby: We'll pop it into the description for everyone to access. David, thank you so much for joining us.

David Hauser: Thank you, Jason, for having me. really appreciate it. really, it means a lot to talk about this stuff and be helpful as much as I can. So if there's something I can do, reach out.

Jason Kirby: Be careful. They just might do it. All right. Thank you, David.

David Hauser: All good. Thanks, Jason.