github_03

When Tom Preston-Werner and his co-founders founded GitHub, there was no intention of building a big company. It was largely a lifestyle business that was appealing because it generated enough revenue to allow its three co-founders to live comfortably after quitting their high-paying development jobs. At the same time, the market for the product was limited in the early days.

Another consequence of this outlook was that Preston-Werner and his partners never considered raising VC at the company’s earliest stages. Instead, they created a schedule of salary increases for themselves to coincide with increasing revenue. At the same time, they saved and hired slowly when the bank account allowed for it.

“We thought, let’s take our time, have fun building out features, and not have people telling us what to do – cause that’s who I am,” Preston-Werner said during tonight’s PandoMonthly fireside chat in San Francisco. “At some point, we stopped thinking of it as a lifestyle business.”

The founders stopped taking profits and putting them into their pockets and started reinvesting them into hiring. “That next year we went from 14 to 55 people. And this was all before VC.” The company was fortunate that its revenue scaled in proportion with Git usage and thus market demand, meaning that its hiring pace was in concert with its needs.

We were very wary of venture capital. VC brings in a lot of resources, a lot of connections, a lot of money. But one thing to consider is that all of that allows you to operate in the way that they know works. If you want to operate in a way that’s crazy, you may have to wait to take venture capital, because they’re going to try to convince you to operate in a way that they know works. And that totally makes sense, but it may be at odds with the way you want to operate.

The last factor keeping GitHub from raising early venture capital was a more practical one: They didn’t know any VCs. “I was just a developer at Powerset,” Preston-Werner says. “I wasn’t hooked in. So I figured, what’s the point?”

When the company did finally raise a round, it was a whopper. GitHub raised $100 million from Andreessen Horowitz* in July 2012, four years after it was founded. The round was announced just two days after Preston-Werner’s first child was born and marked the culmination of an unorthodox journey to the top of Silicon Valley. Said Preston-Werner:

There is a world where GitHub exists and did not take venture capital. The companies that don’t need money are the ones that are best at raising money. It makes it really hard for early stage startups. But if you can make it to a stage where you’ve shown the world that what we’re doing matters and people love and its great and they’re willing to pay for it, if you can get that far, then you control the conversations with the VCs.

The CEO closed this line of questioning by admitting that if he had to start GitHub today, based on his current state of life – including a wife and child – he would start by raising VC. GitHub’s path was as much a function of timing, as it was targeting and of the founders’ station in life. It’s not a path that works for everyone, but it’s one that worked in this case and resulted in one of the most influential companies in today’s technology ecosystem.

[Andreessen Horowitz partners Marc Andreessen, Jeff Jordan, and Chris Dixon are individual investors in PandoDaily.]

  1. GitHub
    Help people build software together.
    Follow on AngelList

    GitHub is the best place to share code with friends, co-workers, classmates, and complete strangers. Over two million people use GitHub to build amazing things together.

    With the collaborative features of GitHub.com, our desktop and mobile apps, and GitHub Enterprise, it has never been easier for individuals and teams to write better code, faster.

    1. PJ Hyett
      Founder