Startup costs are often quoted as the biggest barrier to scaling a business. Advantages of bootstrapped startups include a much faster growth rate (often many times faster than a venture backed startup), complete independence from debtors and significant headroom to grow at a faster rate. Profit margins are much higher on a bootstrapped company and most are acquired at a much lower price than companies that are fully invested.
Venture capital is where the big money is. Means all the resources of a venture capital firm are dedicated to a specific venture. A bootstrapped startup means that the entire company (sometimes very little money) is committed to the creation of a product. With the exception of a few very well funded companies, most startups are created through a series of small, prioritized investments. As a result, they often have a much faster growth rate than venture backed companies, though this varies by product/market. When comparing the two rates, it’s important to look at revenues.
There are many differences between a venture backed startup and a bootstrapped startup. Venture backed companies generally require one or more outside investors to get started. Most bootstrapped startups do not need outside investment. A venture backed company often has a shorter life span because most of their funding comes from one or a few wealthy individuals. A bootstrapped startup can continue operating without outside funding for longer because they are self-funded.
The main advantage of bootstrapping is speed. Typically, a venture backed startup takes 2-3 months to get off the ground while a bootstrapped startup can start production within a few weeks. What this means is that you can create products more quickly. Getting funding can be intimidating especially if you don’t know anyone in the industry and don’t want to jump through unnecessary hoops.
Bootstrapped startups tend to be less expensive, more nimble (sometimes to a fault), generally more focused and have more potential for growth. From a purely practical standpoint, getting a small piece of something to grow a lot faster than starting from scratch with a large structure is preferable. There is significant advantage in getting your first financing.
Investors have a lot of biases and preferences. If you were to invest in a venture-backed startup without knowing how the founders created their business, you would be very likely to get results that do not follow the preferences of your investor. The founders of bootstrapped startups are often younger, less experienced and/or less-wealthy than founders of venture-backed startups. The advantages of bootstrapping include being able to get off the ground more quickly, having more flexibility in raising money (although it does take time), and being able to maintain control over the product or service (although this all depends on how talented the people running the business are).
Entrepreneurs are usually driven by a desire to change the world, create jobs and often have very little capital. The advantages of bootstrapping your startup are manyfold. Your startup will have an edge because it will not require as much early venture capital funding. You can focus your energy on building products and marketing them instead of worrying about raising money from investors. Also, since you are starting from scratch, the chances of success are much higher.
The answer is simple: you don’t take venture capital. Why? Because venture capital is for people who have money and can put it to work in a way that makes them certain they will be rich. When you are a bootstrapped startup, you have no such luxury. You are forced to work hard for your money and if that means grinding to a halt a few times along the way, so be it.
What it means to raise money is often misunderstood. Most people think it means throwing up your hands and taking on the risk that no one else will step up. But that’s not how most startups get funded. Most startups are founded by people who believe in the vision but don’t have the resources to get it off the ground by themselves. The most important thing you can do for a startup without taking venture capital is to put yourself out there early. Your traction will come from word of mouth, networking, and word-of-contact referrals from people who are invested in your vision.
Can you raise money from others? Yes, and probably more effectively than you think. The answer depends on why you are raising the money and your assumptions about what sort of return you will get. If you are raising money for a product or service, many people assume that there will be a large customer base and high expectations for the service. When this is not the case, however, it can be hard to attract the right investors.
Startup founders ask this question all the time, and the truth is that it’s often difficult to raise money for a startup from a traditional venture capital firm without going through a historically long and drawn-out process. That doesn’t mean you can’t find angel investors, though. Most angel investors are happy to back early stage companies without much risk as long as the company grows rapidly.
The process is long and arduous. You raise money from a variety of sources (individuals, angel investors, co-mingled cash). Depending on how much money is available, the process moves from seeking funding to launching a product or service. Each step is distinct and important. This article describes one methodology for raising money for an early stage company, which will hopefully help others who are considering how to start a company without venture capital or angel funding. As usual, there are no guarantees that any of these strategies will work for you.
What’s the difference between bootstrapped startups and an exit-stage startup? Sure there’s some similarity in the outdoor industry and the technology world, but there are important distinctions. A bootstrapped startup is a company that has already raised money from investors. An exit-stage startup is one that’s either raised money from investors but hasn’t yet generated revenue, or is in the process of raising money but hasn’t met its goal.
You can find funds in several different ways: angel investment, bootstrapping your own business, and fundraising via other channels like universities, foundations, and companies that have created special programs for early stage startups. Angel investors specialize in finding early stage companies with a fixed amount of funding and must verify that the company’s goals are real, tangible, and can be done within a reasonable timeframe. In other words, if you’re selling a product that doesn’t exist yet but you think will be big someday…