To successfully grow and scale — in addition to a useful product, a strong team, and a good amount of luck — startups need capital. The quest for capital leads to an age-old question among founders: to bootstrap or to raise money?
Bootstrapping is difficult, and the simple fact of the matter is that it’s not always an affordable option since even the most frugal founder needs some funds in order to get started. However, if you are able to get your company up and running without taking external capital, you’re guaranteed to become highly resourceful and put yourself and your employees in a more advantageous position should your company eventually exit.
At Fuelled, we chose not to fundraise for a number of reasons, three of which are outlined below.
Increased product flexibility and customer accountability
As a company grows, its products invariably evolve along with it. It’s important for startups to be flexible with their product offerings, updating them to best service their customers, increase sales, and scale. But as the number of stakeholders and advisors in a company increases, product flexibility and customer accountability can often decrease.
You’re more likely to find talent who are willing to take a risk to join your team because they believe in the vision and potential of the startup.
When companies raise money, most take capital from investors in exchange for equity, at which point they need to show investors that they’re growing toward a positive return, and the company becomes accountable to more than just its customers. Accepting an external investment doesn’t mean that a company will no longer make customer satisfaction its main focus and implement changes to better service them, but it does mean that more people have a say in company-wide decisions, and change can take more time.
This doesn’t happen when you bootstrap. Companies that haven’t raised funds are able to easily implement product improvements, and maintain a closer relationship to customers.
Quicker path to profit
Many startups are able to sustain losses for years because of the capital they’ve raised — they invest all of their revenue and raised money back into company growth, which can include anything from new hires to marketing and office space. With this capital-heavy, high-expense business model, it can take startups several years to finally generate a profit because they aren’t necessarily worried about cash flow.
When a startup bootstraps, it’s forced to operate on a tight budget in its early years, avoiding all spending that doesn’t immediately contribute to the company’s bottom line. Although this may seem disadvantageous, it means a founder has to be hyper-vigilant in their decision-making process and forces them to reach profitability as quickly as possible.
Dedicated, high-performing talent
One of the benefits of raising investment capital is that startups are able to easily attract and afford top talent. In contrast, when companies choose to bootstrap, they can only afford to make smart, strategic hiring decisions and often can’t pay market salary (which usually means they must supplement salary with equity).
The one outstanding benefit of hiring in this way is that you’re more likely to find talent who are willing to take a risk to join your team because they believe in the vision and potential of the startup. Not raising capital and working with a team that understands you’re on a tight budget can also set the tone of the company as scrappy, resourceful, and committed, and having this heightened level of commitment can lead to a more effective, motivated and engaged team.
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