Deciding between bootstrapping and seeking outside investment is a critical choice for any entrepreneur. To help you make an informed decision, we’ve gathered insights from seven industry professionals, including VCs, founders, and small business owners. From considering financial feasibility and preference to considering personal circumstances, explore their expert advice on this crucial topic.
- Financial Feasibility and Preference
- Evaluate Growth Potential
- Align Your Decision With the Business Vision
- Consider Network Effects
- Factor in Speed and Competition
- Bootstrapping Offers Full Control
- Consider Personal Circumstances
Financial Feasibility and Preference
There are two ways to think about this. First, personally, and second, financially.
Let’s start with finances—can the business actually become profitable without outside investment? This is a pure spreadsheet question. Assuming profitability is within reach without investment, then it is a question of opportunity cost.
Outside investment entails more relationships to manage, selling some control of your business, and, if it is equity, committing to an exit. Are these things worth it in exchange for what the investment unlocks for your business?
Often, founders simply decide they prefer the absolute autonomy of bootstrapping. While the growth investment may unlock can be lucrative, assuming it works, bootstrapping keeps more options on the table—family business, a cash cow for life, employee ownership, and exit to the community.
Assuming bootstrapping is financially feasible, I suggest founders come to the personal answer first, then weigh the cost/benefit of investment.
Jamie Finney, VC and Author, Innovative Finance Newsletter
Evaluate Growth Potential
Deciding whether to bootstrap or seek outside investment for your business is a critical consideration. One key factor to evaluate is the growth potential of your venture.
If your business requires significant upfront capital to scale quickly or if you’re operating in a competitive market, seeking outside investment may be helpful. External funding can provide the resources, expertise, and network to speed up growth and gain a competitive edge.
However, if you have a clear roadmap, limited capital needs, and prefer keeping full control over your business, bootstrapping can be a viable option. It allows you to maintain independence, flexibility, and full ownership while gradually reinvesting profits to fuel growth.
Samuel Fletcher, Co-founder, SupplyGem
Align Your Decision With the Business Vision
Choosing between bootstrapping and seeking outside investment hinges on your vision for your business. Do you aspire to build a venture-scale startup? If yes, consider that raising capital, particularly from VCs, changes the game.
Once you accept outside investment, you no longer have full ownership. You’re tasked with achieving product milestones, enlarging your team, and accelerating growth to meet investors’ return expectations. This pace becomes more pressing when investors need to return capital to their limited partners soon.
This pressure cooker situation may or may not align with your preferences. Some may find it exhilarating, others are overwhelmed, often lured by the hype around startup funding news.
Bootstrapping can offer a more pleasant company-building experience. It’s not an easier route; in fact, you may even work harder. But you hold the reins and determine your pace and direction.
Rafael Sarim Özdemir, Founder and CEO, Zendog Labs
Consider Network Effects
When considering whether to bootstrap or seek outside investment for your business, it’s important to consider the potential network effects of both options. Bootstrapping allows you to maintain complete control of your business and keep all profits, but it also limits your network and resources.
Seeking investment opens up access to potential partners, customers, and mentors, but also means giving up some control and sharing profits. Consider your business goals and the potential impact on your network when making this decision.
Will outside investment help you reach more customers and create stronger partnerships?
Or can you achieve similar growth through organic means?
Don’t underestimate the power of strong network effects when weighing your options.
Tarun Saha, Co-founder and CEO, StallionZo
Factor in Speed and Competition
I was an investor for over ten years before starting my business and have seen plenty of startups debate between outside capital or bootstrapping.
One major thing to consider is your need for speed. If you’ve got a hot idea likely to attract attention, bringing in outside capital can help you grow fast and beat the competition. Remember, bootstrapping means slower growth since you’re only spending what you’re making.
Now, if you’re in a trending sector, getting investors on board can do wonders. Not only do they offer financial help, but they also validate your business in the eyes of others. So if you expect fierce competition, outside capital will help you stay above your peers.
Marko Lazarevic, Owner and Editor, Craft Coffee Spot
Bootstrapping Offers Full Control
You can’t really say “yes, bootstrap” or “no, rather go for outside investors” without knowing more details. That’s because too many factors go into the process of this decision.
Now, I’d say bootstrapping is the way to go. One of the primary benefits that you get with bootstrapping is the fact that you are in full control of the business. There’s no need to answer investors constantly and get a lecture when the business isn’t performing as well as they expect it to. It really takes a lot of stress out of the process.
But, if your financial position doesn’t allow you and you are not willing to take up debt, then seeking outside investment can still be a good choice. Just review any contracts carefully before taking on partners.
Will Baker, Founder, Skirtings R Us
Consider Personal Circumstances
One crucial consideration would be your personal circumstances. If your business requires a significant investment to get off the ground, seeking outside funding may be the better option. It allows you to share the risk with investors and access the capital for growth.
However, it’s important to keep in mind that by sharing the risk, you also share the rewards. This approach can be ideal for individuals without a substantial backup or financial cushion. If you have a backup plan, a tolerance for risk, and the ability to invest your own resources, bootstrapping can be a viable choice.
It offers you more control and ensures that you keep the rewards entirely for yourself. In my case, I was fortunate enough to receive a lump sum redundancy payout during the COVID-19 pandemic, which allowed me to invest in my business and have savings for any future income fluctuations, therefore I invested in training and equipment to get me started.
Ailene Young, Small Business Owner, Aycan Virtual
Greg Grzesiak is an Entrepreneur-In-Residence and Columnist at Grit Daily. As CEO of Grzesiak Growth LLC, Greg dedicates his time to helping CEOs influencers and entrepreneurs make the appearances that will grow their following in their reach globally. Over the years he has built strong partnerships with high profile educators and influencers in Youtube and traditional finance space. Greg is a University of Florida graduate with years of experience in marketing and journalism.