Brothers Nima and Bobby Hakimi launched Convoso in 2006, sparked by a classic startup origin story: coding websites for fun in high school until a cousin who worked in the mortgage business asked for help troubleshooting new sales software. Bobby ended up reverse-engineering the software program and building his own – and the rest is history.

Convoso, a Woodland Hills-based software-as-a-service company that makes dialer software, has been in operation for 20 years. And Nima and Bobby have grown their business without tapping into outside funding – a rather typical, though unspoken, reality of the tech world. 

About 47% of tech companies in Southern California receive some kind of outside backing, be it from venture capital, private equity or angel investing, according to PitchBook. The remaining companies at 53%, including Convoso, are rarely discussed.

Part of that gap is because venture-backed companies are built to scale rapidly and achieve high valuations within a few years. More than 1,500 venture-backed companies in the region have exited, compared to just 27 bootstrapped businesses. But the majority of L.A.’s tech scene consists of smaller companies like Convoso, which may not raise millions and scale to a billion-dollar valuation, but they do see more longevity in the ever-changing tech ecosystem.

“I’m not going to lie and say that the thought hasn’t crossed my mind. I’ve never done it,” Nima Hakimi said. “Being bootstrapped is tough. You have to make more tradeoffs.”

Early venture in LA

Nima and Bobby were just a couple of years out of high school when they co-founded Convoso. At the time, venture funding wasn’t much of an option in Southern California – only four venture firms existed in 2001. Many investors would frequently fly to Silicon Valley to make deals.

Today, Los Angeles is the second-most active venture hub in the country, behind San Francisco, per PitchBook. Hundreds of venture firms now support the region’s thriving startup scene, emerging from universities, established tech giants, and new arrivals drawn to the region’s talent.

Crosscut Ventures co-founder Brian Garrett launched his firm in 2008 as one of the first L.A.-based outfits dedicated specifically to local companies. His early portfolio featured well-known tech companies with deep Los Angeles roots, including media venture Buzzfeed Inc., e-commerce platform ShoeDazzle, and advertising startup GumGum.

“A lot of the early, what I call first-gen tech companies, down here raised very little venture money – sometimes no venture money – bootstrapped their way to profitability and then funded their growth off of cash flow,” Garrett said.

But as venture dollars became more accessible, Garrett has had to turn down countless founders – and even discourage some from seeking investors.

“I truly believe only less than 10%, probably less than 2%, of total businesses in America are actually right for venture dollars,” he said. “But it doesn’t mean there aren’t a lot of fantastic businesses that are being built.”

Built for venture

Adam Miller, a longtime tech founder and entrepreneur in Los Angeles, founded several companies geared toward education and philanthropy that went on to raise millions of dollars. In 2022, he co-founded the nonprofit Better Angels, which tackles homelessness in L.A. County. The organization’s mission is to use technology to track beds and resources scattered across the region for the unhoused population.

“There are other things that are a very particular market or meet a very particular need that can’t use venture capital,” Miller said. “These are things that need to be privately funded or foundation funded in order to cover the costs because there is no revenue opportunity. Those applications will not be profitable themselves, but they serve a really important purpose, and they save a lot of costs for other people.”

What companies are built for venture?

Typically, venture firms look for companies with proprietary intellectual property and operating in white spaces – industries that haven’t quite materialized yet. Space Exploration Technologies Corp., for instance, was a first mover operating in the then-nonexistent market of commercial space travel. When companies form early and grab market share quickly, they are more likely to exit with high returns. Founders often seek funding when competing for market share in a nascent sector and need an extra influx of cash to get there.

“The reason to take venture money is because where you’re trying to get to can’t be accomplished or can’t be achieved as quickly without the capital,” said Garrett. “Otherwise, if you can get there without diluting yourself and giving up ownership, you should. It’s not cheap capital.”

Return on investment

Indeed, founders of venture-backed companies retain an average of 18% of equity upon exit, compared with 73% for bootstrapped founders, according to a Harvard Business School study.

Though bootstrapping can lead to slower growth, that growth is often more sustainable – these smaller companies report 35% fewer layoffs and have a 55% higher chance of breaking even in two years. Thirty-eight percent of bootstrapped companies reach the 10-year mark, compared to just 20% of venture-backed startups, according to Jumpstart.

Convoso took about 10 years to finally create a stable product. It required dismantling the last decade of software and hardware fixes – a tough pill for Hakimi to swallow – and making peace with the fact that the company needed to rehabilitate before it could grow. The company had to turn away high-revenue customers because it couldn’t accommodate the traffic they generated.

“We were growing and growing, and eventually we stalled,” Hakimi said. “It was very tough, because we were used to just succeeding and doing well … you lose that amount of revenue you bootstrapped, right? How do you make it up?”

If venture-backed companies focus on strong IP and capturing market share early, slower-growth companies like Convoso lean more on sales and marketing execution to compete. The company achieved profitability within its first few years, with almost all the profits reinvested in itself.

Convoso has quickly grown to develop new offerings as new technology, like artificial intelligence, came into the fold. Its software was recently integrated with Salesforce Inc., allowing customers to access Convoso within its workplace ecosystem.

Many of its clients come from word of mouth – a far cry from the company’s start, when Nima and Bobby would pitch family friends or scour mortgage-broker forums for potential clients. 

“I can tell you it’s been very satisfying on a personal level because I’ve grown as an individual so much through this process, 20 years later,” Hakimi said. “I was a very shy kid, very reserved. Starting a company like this – you have no choice but to be a leader and do what we need to do. Making tough decisions and tough calls really builds your character over time.”