Bootstrap or not.

Lots of chatter about this recently. 

Maybe it all kicked off with this article :: https://www.nytimes.com/2019/01/11/technology/start-ups-rejecting-venture-capital.html

I co-taught a class the other day at Insead and the subject was around boot strapping versus raising money. It really is an easy answer to be honest. If you can bootstrap then my advice, as a VC, is you should. Why take money if you don’t need to?

However people need to properly call out stuff – meaning bootstrapping typically means funding the company from operations or revenue. If you borrow money, have an angel investor or pumped in a bunch of your own money – you still took or made an investment. You now have investors and frankly this bit that VC money is bad but other money is good is silly. All money comes with terms and all of it expects to be paid back.

The only caveat to this is your own money could potentially be treated differently since you are the founder and you own the company. You could potentially never pay yourself back and settle yourself with an exit or profits.

I see so many silly deals in startup land where the founder stayed away from professional investors, say a VC, but took silly angel money and signed bad terms. I am quite sure those companies are worse off than another startup who took a round from a VC. Keep in mind angels can be evil, your rich uncle can be evil – obviously so can a VC. The point is know the terms of your money and its impact on you and your company.

The core difference in bootstrapping and not is really about growth. This does not mean that VC money encourages or forces growth – the VC can’t really force anything. It is your company but if you take VC money than you are expected to grow more or faster than if you didn’t. That is not some sinister plot by VC’s BTW – it is simply the notion that the capital is easier to get and more expensive therefore you need to use it accordingly. If you don’t like that grand bargain, then don’t take the money.

It is not like VC’s sit around and are desperate to throw money at someone in hopes of forcing them to do something they didn’t plan on doing. This is silly. Everyone knows what the deal is and believe me, we never write a check to any founder that isn’t on that same page.

That would be a waste of capital.

If you can build a solid business without VC money then do it. However don’t raise money from less than professional sources or with crappy terms and pretend this is better. Truly bootstrapping is generally from revenue. Most folks have a hard time doing that. If you can then great, you own more of the company and the outcome is generally better. That is the other myth to dispel – if you raise lots of money and don’t have a huge exit then you will take home less than someone who didn’t raise any money with a smaller exit. It’s just math.

If you have a method for using capital to grow much bigger and faster than if you didn’t take capital, plus you are comfortable with the terms and your investors then take the money. The decision rests with the founders, and VC’s only work with founders who already have arrived at making this decision for themselves.

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