Entrepreneurs

Why this tech CEO turned down funding inquiries from more than 100 investors

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As the CEO of the communications software company Basecamp, Jason Fried has taken a non-traditional approach to finding success in the tech industry.

In addition to his relaxed company culture and 32-hour summer work week schedule, Fried has grown his business while turning down more than 100 investments from venture capital and private equity firms over Basecamp's nearly 18-year history.

"Basically, when you take other people's money you owe them something," Fried tells CNBC Make It. "You either owe them money back or a business decision that is kind of no longer yours. Often times that means selling the business or being acquired and being run by someone else, and we don't ever want to do that."

Jason Fried

Warning young entrepreneurs that an outside business investment usually means you're "setting a time-frame on your existence," Fried adds that he's never been interested in outside funding because receiving money doesn't always translate to knowing how to make a profit.

"We make money from our customers and because we are profitable we are able to stay in business," says Fried. "When you raise money from VCs they aren't that interested in revenue and profit growth. They are interested in you raising more money so they can eventually sell."

As a Chicago-based tech company that rakes in $25 million in annual revenue according to Forbes, Basecamp's team of over 50 remote employees provide freelancers, small businesses and large companies with a software that offers one central location for internal communication.

Fried says turning down investments has not only allowed them to rely on profit gains for growing their business, but it's also allowed them to hire when they want to hire and grow and spend at their own pace.

"Most people in tech who are VC-backed spend more money than they make, and it just adds on to the complexity of the business, which doesn't interest us," he adds.

According to Harvard Business School senior lecturer Shikhar Ghosh, as many as 75 percent of venture-backed companies fail to return cash to investors. Bill Gates refers to the success rate of VCs as "pathetic."

Fried says he's unable to confirm just how much money Basecamp has turned down because "they've never gone down the path to have the conversations with VCs."

Though tech industry culture often promotes accelerator programs and pitch competitions that fail to clearly communicate the pros and cons of funding, Fried hopes young entrepreneurs can look at his business and realize VC backing isn't their only option for growth.

"Young kids get in these [accelerators] because they are looking for help, which is cool," he says. "But these accelerators are all about fundraising, and they have demo days and this whole track of raising money becomes a part of their business — and it just doesn't have to be."

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