Not every startup needs to be built with bucket loads of venture capital. While the road is often slower, there are many examples of founders and entrepreneurs who have built great companies without taking on external funding.
We will jump into a few examples shortly, but firstly it’s important to address why you would want to take venture capital in the first place. VC funding should not be seen as an “enabler” of your business. It should only ever be used as fuel on what is already a small, but successful fire.
Before you get to that point most entrepreneurs are forced to bootstrap anyway. Yes, there are a lucky few who can raise on the back of an idea (or past exit), but chances are if you are reading this, then that isn’t you.
But even if you can raise external funding there is a number of reasons why you may choose not to.
Number 1 – Bootstrapped Companies Can Still Provide Large Outcomes
There is a myth that bootstrapped companies are always smaller than their funded counterparts.
While VC-backed companies often hog the limelight there are numerous well known, tech-based startups that have truly broken out. A few include:
- Basecamp (37 Signals)
Number 2 – You Can Raise At Healthy Valuations if and When You Choose To
As a bootstrapped startup you are forced to monetize from day one and find ways to be profitable or at least cash flow positive.
This provides options. And with options, you have the ability to say no to a funding deal that isn’t quite right for you and not risk going out of business in three months’ time. Not all VC-backed startups have that chance.
Number 3 – You Can Retain Ownership & Still Reward Your Staff
Often a criticism of bootstrapped startups is that it is harder for employees to get equity in the company, or cash it out at a later date.
Atlassian is a prime example of a modern technology company that successfully negotiated this obstacle. The company was bootstrapped for a number of years, and when they did bring on an external investor it was largely to provide an avenue for early stage employees to sell down their shares in the company.
Where there is a will, there is a way. So don’t let this concept hold you back.
Number 4 – You Breed a Culture of Responsibility
When you build a bootstrapped startup everyone around the organization learns the importance of a dollar saved.
If you have just raised a large round from a couple of VC’s funds, it’s easier to take bets on unproven marketing channels or campaigns.
Staying bootstrapped instills discipline and respect within your team for how hard it is to attract and retain customers, without a VC there to subsidize your experiments.
Number 5 – You Don’t Have To Bootstrap For Ever
When you raise VC funding you essentially jump on the mouse wheel and don’t hop off again until your company fails, gets bought out or goes public.
Each round of VC funding (at least in the early stage) is designed to get you to the next milestone and last 18 – 24 months. That is to say, once you start, it can be hard to stop taking on external funding even if you want to.
Conversely, if you choose to bootstrap your startup both options always remain open to you. Even if you have passed the stage of being a “startuP’ and its 4 or 5 years down the track. If your company is growth and has a strong future there is no reason why you can’t bring on external funding at this point in time.