Bootstrapping Vs. Funding: What is better and Why?

  • 25th Jan'22
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“A big business starts small.”- Richard Branson.

Building a business is not as easy as making a cup of tea. It needs a lot of patience, dedication, hard work, and funds. You need to have an ample amount of money to run your startup. The funds take us to the question that almost every entrepreneur faces. Should you bootstrap your startup or try to raise funding? Before knowing what you should, choose before setting up a business. It is important to know the basics of bootstrapping and funding to know the value of your business.

In this blog, we will walk through the various aspects to consider when deciding between bootstrapping vs funding.

 

What is Bootstrapping?

The process of using only existing resources such as personal savings, personal computing equipment, and space to start or grow a business is termed bootstrapping. The term “bootstrapping”  was coined in the 18th century by the phrase “to pull oneself up by one’s bootstraps.”  At present, it is referred to as the challenge of making something out of nothing. 

 

What is Funding?

When you seek out the investors, also known as venture capitalists, and get them to invest money in your business is called funding. These investors provide you with the capital in exchange for equity. 

 

Funding vs Bootstrapping

 

Bootstrapping Vs. Funding 

Deciding whether you want to bootstrap your business or seek funds, you need to consider a few things about your company. Here are a few factors you need to consider before making a decision.

 

Goal 

“A goal without a plan is just a wish.” The goal you are working towards affects your decision to bootstrap or seek funds. For companies choosing to bootstrap, the goal is usually to gain profit only. On the other hand, funded companies aim to maximize revenue growth.

 

Clear Mindset 

First, be clear whether you want to be in the market for long-term achievements or just want to vanish in a year or two. If it is for timing then bootstrapping is the right choice, but if you are here for the long term, raising funds would be a better option. The venture capitalist usually invests in a business, with a target to exit in three to ten years. 

 

Growth 

Think about what kind of growth you want to achieve. When you bootstrap a company, you are working on limited resources. That eventually means your growth will be slower. On the other hand, if the business is funded, you can grow and gain transactions quickly.  You should also know the steps involved in fundraisingMoreover, both ventures can get good scores on the rule of forty. 

 

Control 

When it comes to freedom and control, you have a lot more flexibility when you bootstrap your company. You have a choice to get into a project or to leave one, no one will question you. When you are funded, you are likely to have more rigid and structured timelines, and you also tend to suffer from last-minute change and chaos. 

Moreover, accepting funds means the company is not 100 percent yours. You have to consult your investors before making any decision for the company. 

 

Bootstrapping Vs. Funding; Pros and Cons 

Before deciding whether to choose bootstrapping or funding, you should have a detailed study about its pros and cons. 

 

Bootstrapping Pros 

  • Flexible timelines. 

  • Control over the business.

  • More financial discipline.

  • Gives the feeling of accomplishment.

 

Funding vs Bootstrapping

 

Bootstrapping Cons 

  • Fewer resources. 

  • The slow growth of the business.

  • More chances of failure due to finances.

 

Funding Pros

  • More access to resources.

  •  Rapid growth. 

  • Helps you to survive in the competitive market.

 

Funding Cons

  • Rigid timelines.

  • Less control over the business.

  • Less financial discipline.

  • Have to ask for permission. 

 

Conclusion 

At the end of the day, it is your business and you are the one responsible for its success and failure. What you choose depends on you and the choices of your business. Once you enter the market, your growth rate, funds, resources, cash flow, and risk will eventually make you decide what to choose and why so. If you are confused, you can hire an advisor for your startup.

On a similar note, it is not important that if you are not raising funds now, you won't do it in the future. It is possible to raise funds later in your roller coaster business journey. 

 

We at OpenGrowth, are committed to keeping you updated with the best content on the latest trendy topics from any major field. Also, both your feedback and suggestions are valuable to us. So, do share them in the comment section below.

Sources/References:

*Note: The content published above was made in collaboration with our members.

About the author:

KAJAL THARWANI, OpenGrowth Content Team

An explorer who takes risks and learns from her mistakes. An aspirational content writer, studying social work. Kajal loves trying her hands in different crafts.


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