As an entrepreneur struggling to find an answer to this question, you probably found plenty of sources that support one or the other option.

So which one is most suitable?

My say on it: you will not find an answer to this question in any article.

But I am writing one, right?

What I think is important for you to take this decision is that you are able to make a conscious choice and that you properly evaluate the pro and cons of both scenario – at the end of the article there is also a little thought-exercise to that purpose.

If this happens, you will be able to take a truly right decision for your situation and goals – not one based on arbitrary articles that disregard your situation.

Bootstrapping vs Investments: Pros and Cons

All the variables in these two scenarios should be accounted for. The first step is therefore to create a list of pro and costs of both options, as follows.

Bootstrapping

There is a certain type of mentality that is adopted if the choice falls on bootstrapping. There is no one who will tell you that bootstrapping is easy. However, there are a few perks that accompany the hard work:

  • Prioritizing the projects becomes easier – you can focus only on the ones with the biggest potential for success
  • Only the best people who deserve the last part of the budget are taken aboard. When there are little funds, there is no place for someone who cannot perform or cannot fit with the company culture
  • Emphasis on revenue maximization
  • Remain independent in terms of making decisions about the future of your company and keep an high proportion of shares
  • Instead of spending time to chase down an investment, you can use it to focus on building the company

Did you know that TechCrunch, one of the most-read tech websites in the world. was fully bootstrapped for six years before it got acquired? And that when AOL purchased it in 2010 for $30 MLN, co-founder Arrington still owned about 85% of his bootstrapped company?

Angel or venture capital investments

Despite decreasing the initial founders’ stake in the company, accepting an investment brings certain benefits for the business:

  • Receiving external capital serves as validation that investors believe in the idea and the value proposition.
  • The advisory position of an investor forces founders to have solid argumentation and defend each of their ideas concerning the growth and development of their company.
  • Funding ensures lower time-to-market and fast growth because of the ability to hire a bigger team and attract talent
  • Opportunity to test and pivot many times
  • Last but not least, some businesses just require a high initial capital to start so an investment cannot be avoided

This image summarise these points:

Think about the exit strategy and decide

Even though this forecast does not depict the actual reality, in the sense of a thought exercise the exit strategy can be an excellent guideline in determining your choice for bootstrapping or investments.

– In the ideal five year scenario, what percentage of the company will you still retain?

– Is your stake more valuable in scenario one or two?

– Which of the two do you consider more valuable?

– Does the investment way allow you to build a company that is much larger?

– Or the fact that you are money constrained but investment free will allow your creativity to spur out and find a way to make your company a success?

These are the real questions that, in my opinion, an entrepreneur should ask him/herself when faced with this choice. All the rest is, as said above, advice and opinions.

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