This article was authored by Jeanne Heydecker and originally published on the Woomentum network.
Financing your business idea can come from many options depending on the amount you need to start, from microfinance, bank loans, seed or angel investors, private equity or your personal savings.
Bootstrapping is typically using your own savings and perhaps borrowing money from friends and family to start up your venture. It makes you focus on revenue from day one and forces you to be disciplined in your spending. Because it’s personal. It’s your money. It’s your family and friend’s money. It makes you creative in how you market your company. I fully and completely recommending bootstrapping for as long as you possibly can.
Bootstrapping enables you to keep full control over where your company is going. Investors can pressure you into other options, such as ramping up quickly when the sales aren’t there to support it, significantly increasing your burn rate (amount of money you spend each month). This can lead to being forced to start pitching earlier than expected for additional funding and diluting your shares even more. The investors may want you to pivot or agree to be acquired, when you’re not ready or don’t want to. Only go to investors when you have the track record and have a significant need for funding to grow to the next level (it is never a good idea to seek funding when your company is about to close and you’re desperate to keep the doors open). Making the decision to seek funding should not be taken lightly, and only when you see no other alternatives.
The caveat to this is “time”. If you need to ramp up quickly to get ahead of competition with a similar product/service, you’ll need a lot of money and as fast as possible, like the turf war in San Francisco between Uber and Lyft. This is especially true of certain business models, such as jobs, travel, auctions, real estate, and other industries that require marketing for both buyers and sellers in a crowded market with established competition with deep pockets. Carefully consider whether your solution is radically different enough to engage industry media and disrupt the status quo. Your pitch to investors needs to demonstrate this very effectively or investors will pass.
What do you think? I’ve heard founders say that it doesn’t matter how much dilution happens; there will still be plenty of money for everyone on the back end. Would you bootstrap or seek other funding? Would love to hear about your experience.