Bootstrapping vs. Funding

Funding v/s Bootstrapping

Now- a-days, funding has become a new trend, as soon as one come-up with an idea, creates projections and immediately seeks VCs or investors for funding.

But is this approach suitable for every startup? Is it worth investors’ money?

In this article, we shall be covering bootstrapping and funding, discussing which should be opted why and when.

Bootstrapping is fancy term for using your own or borrowed money to start your business having 100% ownership of the business, whereas Funding refers to bring shareholders on the table to share ownership of your business in exchange of capital infusion.

Understanding your target audience and creating niche requires savvy approaches to the issues in hand over financial resources. You must be dynamic and extremely resourceful to solve the issues at hand.

Having control of your business and flexibility to take necessary steps deemed by you without someone hovering over you for results without going deep into the issue solving it from the roots is one of the biggest advantages of bootstrapping.

Funding is where you get capital from external resources such as VCs, high net-worth Individuals etc for equity in your business i.e., getting ownership in your business.

With funding comes expertise and networks that the investors have developed and created over the years and can lead you to the right path for your business. Sometimes, the only hurdle in your business is financial resources, specially while maintaining inventory or working capital, that’s where funding really helps you  in comparison to loans, as you don’t have any current liabilities to pay to them.

There are some businesses which do not need large influx of money, in that case, having funding becomes detrimental both for founders and investors. Since, having founders are spending aggressively unnecessary and investors are not getting returns on their money,

In my opinion, during the initial stages, bootstrapping is the better option. Through this you have control over the expenses, taking mindful decisions and have your focus entirely on business building rather than having pressure of regular reporting to investors. Understanding your target audience and creating niche requires savvy approaches to the issues in hand over financial resources.

Once you have reached your first 100 miles and have potential for further growth, but little distracted by the path ahead, then funding should be the option you resort. Having someone with expertise and resources to help you grow your business is worth having a seat at stakeholders’ table.

With your experience in your business, you now have strategic idea and can resort to the expansion well with keeping in mind to optimize your resources.

However, if you have reached your potential market and target audience, it is wise to ensure that you optimize your departments and maximize your profits rather than joining the race of funding.

There are few points that you can keep in mind while analysing whether you should opt for funding or bootstrapping, however, not limited to following points;

1. Does your product have first mover advantage?
2. Do you have the resources to initial fund your business?
3. Do you understand your market size and share?
4. Is your only hurdle financial constraints?
5. At what rate your business is growing?
6. Does your business have scalability?

In conclusion, both bootstrapping and funding depends on numerous factors such as market size, first mover advantage, expertise, financial constraints etc. One should evaluate the pros and cons carefully before opting for either option, keeping in mind, strategic moves, and adaptability towards changes in circumstances helps you grow your business.