Does Your New Venture Need Funding or Should you Bootstrap?
When you’re launching your new business and realize that your progress could be accelerated by funding, this brings up one of the most difficult questions for new founders: should we bootstrap and take things slower or seek out investment in exchange for someone else owning a stake in my company?
Bootstrapping means seeking out no outside funding for your business, either by taking services in kind or using your own funds to pay for launching your company.
Getting funding has always been difficult and especially so for women and minorities, unfortunately. But the fast pace of business and volume of new businesses flooding the market means that it’s also gotten even more competitive.
Every year, over 500,000 companies are started. At the very most, only 6% of all startups receive funding from angel sources or venture capitalists. Not all startups do seek funding, so it’s not required. It’s not the right fit for everyone. In this article, you’ll learn more about the factors to keep in mind when deciding whether to seek funding or keep your equity.
Question to Ask Yourself: Do You Know What You’re Giving Up?
No matter which route you choose, you’re going to give something in order to get something. With getting capital, it’s equity. With bootstrapping, it’s your time and money.
No matter how you slice it, venture capitalists invest in companies because they hope you’ll see a return on their investment. Providing cash upfront means they’ll want equity in your business. While this is par for the course with most venture capital investments, think carefully about not just what you’re gaining, but what you’re giving up.
If you dilute your company too much, will this impede future progress by having too many cooks in the decision-making kitchen?
If you give any one party a bigger stake in your company and haven’t carefully vetted whether they are a good fit as a partner, will you find yourself in constant power struggles or conflicts?
If you and any cofounders or other leadership team members have fundamental differences in terms of values and company mission, how will this influence team retention or cofounder happiness?
Bootstrapping is hard. Turning to your own savings or friends and family might mean that progress is slower than you expect. You might have to rely on your advisory board more for support with challenges and figure out how to approach problems creatively. You’ll have to be really independent and motivated to make things work when there’s no easy solution of a cash infusion. On the other side of that coin, your focus can be on your customers, not on investors, which might help you grow more.
Think about how this slower pace might affect your company.
Would losing out on cash now give a competitor time to race to the market with a solution that would render yours meaningless or up against a market leader?
Would waiting too long cause you to get stuck in a headspace where impostor syndrome or fear of failure block you from being able to do what you need to do?
Question to Ask Yourself: How Important is Cash?
Cash flow is one of the most common reasons for a startup to close their doors. If you can’t foresee making it through the next six months with your cash on hand without the support of a major outside investment, you might consider pursuing funding options.
Remember that even if it seems like cash from funding could fix a lot of problems, that can be a long path and a frustrating one, too. It’s also not a cure-all. If there are other issues in the company, like leadership or product-market fit, money isn’t going to solve those right away. Make sure the timing is right for funding and that you’re seeking it out because you’re confident it’s the path to scaling the success you’ve already obtained.
Lean in to Your Support System for Final Answers
Having an advisory board and other startup founders you can turn to can make a big difference in how you view and approach these problems. The support of others can help you realize when funding is- and isn’t- the answer.