Gleb Budman of Backblaze describes bootstrapping from a one-bedroom apartment and a near-acquisition that fell through. They cut costs by handling their own legal work and negotiated the potential buyer to cover $100K in fees. The company later ranked 128th fastest-growing tech company by revenue.
Chapters
So scenario number 2 that happened. So this is about half of the office of Backblaze that existed in 2009, end of 2009 or so. We started the company out of Brian's one-bedroom apartment and the idea originally was it was 5 people, 6 months and then we'd get out. Yeah, you know how this goes, right? So 5 people became 7, 6 months became a year, a year became a year and a half. At some point, Brian was like, OK, you guys are clearly not leaving my apartment, so I am. And he moved out. And so— which was very convenient, because we needed more space. And so we took over the bedroom and made it a conference room. So at this point, we'd been going for— we went for a year and a half as it turned out, without salary, and then we went, we started taking minimum wage, which, you know, it's kind of hard to survive in the Bay Area on minimum wage. So we were still bleeding cash, and it was still a very small team, and one day this company comes over and says, you know, we really like what you've built, you've got this cool technology for storage and you've got this online backup service that customers really like, and we need something like that, would you be interested in being acquired? And we're like, maybe. And so we started talking about it, and we're like, well, there are upsides and downsides to being acquired, but one of the things we wanted to do was help lots and lots of people get backed up quickly, and we were still 5, 7 people sitting in a 1-bedroom apartment. It was going to take a while before we helped a billion people get their data backed up. So this larger company has channels and marketing and lots of people and they were going to give us resources and so we're like, this could be interesting, in addition to the fact that it was pretty lucrative, like every single person was going to make at least $1 million. So we're like, yeah, this is pretty interesting, let's do this. So for 4 months we go down this path, we sign a term sheet, we're going, we're meeting all the various people, we went and actually saw offices here that we were going to move into because Needless to say, we weren't going to continue fitting in a 1-bedroom apartment. And so we were going down this path. And this is kind of what we were feeling. Yeah, this is going to be awesome. We're going to just fly. We're going to take all of our technology and our team, and we're going to add people to it, and we're going to add resources to it. And this is going to be awesome. And for 4 months, we're working down this process. And then the day before we're supposed to close the deal, The CEO calls me and he said, Gleb, I am so sorry. I can't get my board to agree to the deal the way it is. We need to restructure. And by restructure, they meant like we need to take on a lot more of the risk and they are going to— Take less. take on— it's going to have less cash and a lot more of the risk on us. And we thought about it for a little bit and it's like it's still lucrative, it's still all kinds of good stuff, but the problem is this is a marriage at this point. We are going to be committed and working with this company for years to come and here they are at the last minute taking the rug out from under us and wanting to reshift stuff. What's going to happen once we're acquired and part of them? This is going to be terrible. So we— This was us the next day, we're like, ugh. We've just spent 4 months on this process, we've kind of gotten a little derailed and everything, we had all these great plans, they're all gonna go down, and now it's like we're back to being 7 guys in a 1-bedroom apartment with no money. This could have been kind of the end of things, in part because— so when our last company got acquired, we spent about half a million dollars on— between lawyer bills and accounting fees on just the process of getting acquired. Half a million dollars. Okay, we didn't really have half a million dollars to spend on that in this time. We were still not taking salaries, super thin margin. So like if we needed to come up with half a million dollars at that point, like Backwise would have shut down. That's it, over, everybody go home. But we did 2 things to keep us from going out of business in this time, and both of them were again because we were bootstrapping and didn't have money and not how we would have done it had we raised millions of dollars. So one was that I had talked to our lawyers ahead of time and I'm like, I know that normally you guys just communicate directly with the company that is going through the acquisition and you guys all just constantly work things out together. The problem is that like lawyers talking to lawyers for hours on end about every single thing costs a lot of money and that's where the $500,000 comes in. And so what I said is, look, I want your help and advice, Understanding what some of the key things that we need to negotiate are, but I want to do the communication. I want to read through the contracts. I want to do a lot of the work myself because the reality of it is it's your business. You're the ones that are going to have to live with these decisions afterward. So if the lawyers negotiate, oh, you're going to work here for 3 years or 2 years, you're the ones working there, not the lawyers. Right. If the lawyers negotiate, That you're going to take $3 million upfront and $2 million in earnout because you're hitting some milestones. You're going to either get or not get those things and you're going to have to hit those milestones. Right. So as much as possible, you can work through a lot of these issues yourself, taking advice from lawyers instead of just handing it and saying, yeah, yeah, sure, go ahead, you take care of it, and then here's a half-million-dollar bill. So instead of a half a million dollar bill, we had a $100,000 bill, 5 times smaller than it was for the acquisition of our previous company. Now that's great, that $100,000 is a lot better than $500,000, but we still didn't have $100 grand sitting in a bank to just pay the lawyers. However, when we started going into it, when we signed the term sheet with this company that we were going to go get acquired by, I actually told them, I'm like, look, here's my fear. My fear is not whether you decide or don't decide to acquire us. We like our business, we want to do our business, whether you want to play with us or not, totally fine. My fear is that we're going to go down this path and then at the end of this path something's going to happen and we're not going to close and then I'm going to be saddled with this huge bill and we're not going to have any money and we're going to either have to take a deal that we don't want with you or we're going to go out of business. And so what I negotiated in the term sheet upfront was that they would cover our lawyer and accounting fees up to $100K. So— and they were like, but that's ridiculous, like that's never the way it works. And I'm like— I understand, but here's our scenario. We're bootstrapping, we don't have this cash in the bank, If you want to go down this path, this is what we need to do. And it doesn't harm you, which is if you want to do this deal, then this will never be an issue. And if you end up walking away from the deal, well, $100,000 is not going to sink your company, but $100,000 could sink ours. So because we were bootstrapped and didn't have money in the bank, in a way, in this very strange way, it gave us leverage to ask for something we couldn't have asked for in this negotiation had we actually had money in the bank. So a little counterintuitive, but it was incredibly important for us at the time. So fast forward 5 years, we didn't get acquired, but the company survived through those things and so we actually recently were listed as the 128th fastest growing tech company by revenue in the country. Facebook was 129th, which was, which was a little funny.
