Should You Bootstrap Or Take VC Funding?
If ever there is a question where the answer is “It depends”, this is the question.
I’ve known entrepreneurs that have bootstrapped that have made a fortune, and I’ve known entrepreneurs that raised VC money that made a fortune. I don’t really think the question is whether bootstrapping or VC funding yields you the most amount of money.
The real question is should you bootstrap or should you take VC funding?
You start by making the “Will I make money bootstrapping or with VC funding” the last question you ask.
That’s right. Make the amount of money you make bootstrapping or with VC funding the last question you ask.
Instead start with this question:
Will you have a better chance of success bootstrapping or with VC funding?
The money will take care of itself if you take this approach.
There are many decisions you make when you start a company. But the most important decision you will make is who will your investors be?
No matter whether you bootstrap or take VC money, you will have investors.
And you want to make sure that you and your investors are aligned from day one.
If you bootstrap and finance the venture yourself, you had better make sure that your family understands:
- How much money your company will need? And…
- How you will pay them back? And…
- When you will pay them back? And…
- Will your investors (your family) continue supporting you if things don’t go to plan?
If you take VC money, then you need to make sure you and your investors are aligned as well. For example…
- Do you and your investors agree with the long term vision of the company? And…
- Do you and your investors agree on how much money your venture is going to need? And…
- Do you and your investors agree on the key milestones your venture needs to achieve and when you need to achieve them? And…
- Do you and your investors agree on what an acceptable outcome for your venture will be? And…
- Does your venture fit the profile of the fund? In other words, will a successful outcome for your company be a successful outcome for the VC firm?
And we haven’t even spoken about the emotional concerns you might have:
- Will you be okay losing some control over your company if you take venture funding? And…
- Are you willing to take longer to succeed because of the lack of funding if you bootstrap? And…
- What if you fail to raise money? The odds are stacked against you (about 100:1 against) getting venture funding.
Go big or go home?
There are some businesses where you have no choice but raising venture funding. My company (a semiconductor company) needed to raise large sums of money, so there really wasn’t a choice but pursuing venture funding.
And there are some businesses where the economics just don’t work for venture funding. In fact, the majority of new businesses really aren’t meant for venture funding.
You may have a choice. And, the choice really boils down to speed versus control, alignment versus ownership.
For more, read: What Are The Five Fatal Mistakes That Will Kill Your Business?
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