Posted by Early Growth
November 25, 2014 | 6-minute read (1171 words)
Originally published in GeekWire.
There’s more than one school of thought about startup financing. After all, there are some very successful companies that have managed just fine without VC money, often on purpose.
But as one entrepreneur we polled puts it below, if you really want to see your startup grow and thrive, then the question might be quite simple: “Do you want to be king, or do you want to be rich?”
We asked 10 founders, members of the Young Entrepreneur Council (YEC), to weigh in on the bootstrapping-versus-outside capital debate—and offer some insight about the nuances of raising startup capital early versus going it alone.
Perhaps surprisingly, many advocated for bootstrapping, at least for a little while. Here’s what they had to say about it:
1. Bootstrap First, Fund for the Stage, Then Fund to Scale
I’m a big fan of bootstrapping when starting a business. Typically your first round of funding will be from friends and family. They’re taking the highest risk of any of your investors, and I prefer to eliminate a good part of the risk before taking money from this group. That means validating some of your initial key assumptions by, for example, building out a rudimentary minimum viable product and seeing how it resonates with actual customers. Only once I’ve validated that the business model will in fact work do I raise that round to improve the product and do early customer acquisition.
— David Hassell, 15Five
2. Don’t Walk an Inch in Those Strapped Boots
The pro/con dynamic is a matter of perspective. One boostrapper’s autonomous self-assurance and rugged individualism is another entrepreneur’s isolation. The validation that came from earning the buy-in of strangers—getting them to believe in my company—bolstered my confidence in our product. Plus, the process of overcoming criticism also forced me to strengthen my business plan. So, I don’t regret my choice to seek funding from angels and venture capitalists.
— Manpreet Singh, Seva Call
3. Decide How Quickly You Want to Grow
The choice to bootstrap or fundraise often comes down to how quickly you want to grow, how large the revenue potential is and if you can get cash in the door quickly. We bootstrapped because it made a lot of sense for us. As a professional services firm, we could grow organically and only add resources as needed. On the other side, we see most of our clients are venture-backed startup companies that are going after much larger markets with higher revenue targets. These kinds of companies need funding in order to achieve high rates of growth.
— David Ehrenberg, Early Growth Financial Services
4. Consider Each Venture Individually
Growing a small business requires a mix of time and money. Usually the more you have of one, the less you need of the other. If your venture is time-sensitive (say, for a lot of technology), then getting to market as quickly as possible warrants fundraising. If time is on your side, and you wish to maintain more of your company, you may want to give bootstrapping a shot. Because each venture is unique, each deserves its own consideration.
— Nicolas Gremion, Free-eBooks.net
5. Factor Your Experience Level In
I think bootstrapping is the way to go for new entrepreneurs, so they can learn the lessons that only come when you start small. If you are an experienced SBO, raising capital may be a better route. It can also help you add more experience to your team if you take on angel investors with management and investment experience.
— Joe Barton, Barton Publishing
6. Bootstrap Until You Outgrow the Boots
We’ve grown one company on bootstrapping alone, and we took the other one as far as we could on our own before raising money. Do you want to be king, or do you want to be rich? At some point, it will become very apparent that you can’t achieve your company’s true potential without being okay with dilution. You have to realize that the exponential growth you can achieve will far outweigh the big stake you might have held beforehand.
— Michael Portman, Birds Barbershop
7. Learn by Bootstrapping
Bootstrapping is the way to go because you control your vision and business. If you build a business that is sustainable for investors, then the money will pour in because your numbers will do the talking. The downside: It can slow your growth, which is where you will learn discipline. Raising money early on can help a startup grow quickly, but too much growth can cause a startup to fail. I suggest bootstrapping because it’s the best way to learn everything about your business.
— Ak Kurji, Gennex Group
8. Raise Only if You Have to
There is a weird stigma that raising money is the “cool” thing to do. Yes, it’s cool to give up X percent of your company. If you need the money to scale, expand, etc., then by all means do it, but don’t just do it because you think you should. Build, gain traction and drive as many sales as possible—don’t raise money until it’s 100 percent necessary.
— Trace Cohen, Launch.it
9. Bootstrap to Prove an Idea, Raise Funding to Accelerate It
If you can bootstrap and then see results, you know you have a viable business idea to grow. It also makes you smarter about your spending choices, so you hone an idea before you launch it. Once you’ve proven your idea has merit in the early stages, then it’s time to raise funding to accelerate—just don’t lose the bootstrap mentality now that you have additional funds.
— Benish Shah, Vicaire Ny
10. Bootstrap if You’re a First-Time Entrepreneur
Bootstrapping should be the way to go for most first-time entrepreneurs. There’s just so much that you learn as an entrepreneur by getting creative and spending wisely. You have to work a lot harder, and it’s those lessons that make you become a better entrepreneur. Fundraising isn’t a bad thing, either—it certainly can help you get where you want to go a lot faster. The only problem is that most of the time, you’re paying crazy, high interest rates or giving up a piece of your company.
— Peter Nguyen, Literati Institute
Did you bootstrap your business? Tell us about your experience in the comments section below or contact Early Growth Financial Services for a free 30-minute financial consultation.
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The Young Entrepreneur Council (YEC) is an invitation-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.