[vbhartia]

Reading through your YC application, you were already so successful ($1M in rev, 60% growth rate, 1M users), did you ever have second thoughts about going through YC? If you had not gotten in, what would you have done otherwise?

Congrats on your success!

[sytse]

Thanks! We never had second thoughts about YC. We did talk a lot during YC if we wanted to take outside investment. If you take investment you need to work to a liquidity event (acquisition or IPO). Since we would like to stay independent the only option is an IPO. Not many companies make make that.

But we also wanted to make GitLab a great and popular solution. For this we need the best marketing and sales people. When we tried to hire those they wanted options in the company. It is not fair to give options if it will take very long to cash them. So we needed a liquidity event in any case. In that case it was better to take outside investment so the chance of getting to IPO was higher than without it.

If we would have not gotten in we would have continued GitLab and probably applied again for the next batch.

[sanderjd]

I'm very curious about the part where prospective employees wanted options, implying you need a liquidity event anyway. Aren't there other models for that? For instance, a partnership track setup, or paying dividends on shares, or some other sort of revenue sharing? Equity in profitable privately owned bootstrapped companies must be valuable, or there would be no incentive for the founders of such companies, so why not offer a share in that value?

[sytse]

Great question, I'm sure there are multiple models possible. One complication is that our priority for next few years is to grow as fast as possible. This means that you're not making a profit but investing back in more growth.

Since we took outside investment that period is about 5 years. Without outside investment it will take longer, maybe 10 years. Many potential hires don't want to wait that long. They might wait 10 years but only if you get a substantial windfall at that point, not the first small profit share.

Partnerships are more common at consultancy and finance firms where labour generates direct profits. I think they are less suited for product firms where the labour comes years ahead of the revenue. A liquidity event is a great way to bring the 'windfall' forward.

Of course things are not black and white. We choose a 4 year vesting period https://about.gitlab.com/handbook/stock-options There are startups now doing 6, 8, and 10 years. We didn't have a good reason to deviate from the norm, so with our vesting time we stuck to what is usual in order to be an attractive employer and hire the best executives.

[sanderjd]

Thanks for the answer! This is all great food for thought.

[bisRepetita]

Can't upvote that question enough. If anyone with experience there could chime in, that would be really insightful.

[vbhartia]

Got it. Thanks! How did you think about the standard terms - 7% of your company for 120k. Seems like you would've had a higher valuation already, so 7% would have been costly. Feel free to not reply, I understand if you can't disclose terms.

[sytse]

I hoped for another valuation but we got the standard terms. In hindsight it was a really good deal for us. It is not about the $120k. They way I look at it now is, did it make us 10% more successful and valuable? For sure it did. The money is secondary, it is more like a full scholarship so you can attend the program than an investment.

[vbhartia]

Yeah - makes a lot of sense. Thanks!