Getting a startup off the ground is the hardest part. It doesn’t have to be supported by your imagination alone, because multiple financial frameworks exist to develop a stable foundation. Bootstrapping and funding are common avenues for innovators to start their businesses, but which one is right for you?
What Is Bootstrapping vs. Funding for Startups?
If you’ve ever heard the phrase “Pull yourself up by your bootstraps,” you may already know what bootstrapping entails. This is when startup founders start their companies with money they save, with minimal to no outside help. It’s an empowering way to cut the proverbial ribbon if you know all the success was because of your good planning.
Funding comes from outside sources like venture capitalists (VCs). First, you must discover if you’re even eligible for VC funding. It isn’t as easy as asking people to believe in you and watching the money funnel through without resistance.
Venture funding often has contingencies or contracts you need to adhere to. Investors want to earn from their risk, so paying them back quickly is ideal. Meeting this could be challenging, especially for startup leaders still determining their growth potential.
You’ll also consider how much of your brand you want to own. If you’re uncomfortable with owning a quarter or less of your enterprise, VC funding may not be a good fit. Bootstrapping gives more autonomy over revenue and how you spend your money. More of that payoff goes directly to you and your team if you’re fortunate.
There are some circumstances where VC is the only way to go. Having outside input could be why your ideas ascend into the stratosphere, earning you millions. Sagely advice from industry professionals who have a vested interest in your success is nothing to dismiss. Plus, if you know you need large sums to purchase facilities or niche equipment, it will be easier to convince investors of how you can make sustainable, sizable returns.
Why You Should Build Financial Foundations
VC funding and bootstrap mentalities are different. Investors ask how you’ll spend cash, but they expect potential waste, especially when you’re new to the industry. Bootstrappers are more restrained and resource-aware. They may not grow as fast because of limited liquid capital, but their decisions might be more curated.
These circumstances warrant a financial foundation. It should include savings, an emergency fund, a diverse portfolio and low debt levels to ensure your startup has a long-term chance.
Resiliency is the objective. Too many influences could uproot a startup’s operations or cause a change in course. To start the strategic planning process, brainstorm ways to maintain momentum if growth slows,
How to Develop a Plan Both Ways
Developing a financial preparedness plan is largely the same for bootstrappers and those receiving VC funding. Both consider the possibility of life circumstances changing or the market moving in a different direction.
Start building your plan by understanding how valuable your venture is. Do you have intellectual property and scalability that’s timelessly attractive to buyers and investors? Knowing this information will make it easier to build relationships, network and gather resources with a community that believes in your vision.
Next, do market research. You only know how to strengthen your startup if you know your niche’s landscape. Are you entering a competitive space where several prominent players are already dominating? Is your idea timeless but leverages a media microtrend? Do you understand what companies similar to yours have done to fight tough spells?
Then, you should implement lean business practices while embracing a mixture of financial streams. Making the most out of income requires you to cut expenses first. Consider seeking angel investors or fundraise from investors not tied to corporate funding agencies. You could also apply for local loans, which may be for small businesses anyway to promote entrepreneurship in the region.
How You Review and Update the Startup’s Plan
You’ll need to review your financial plan consistently. Goals constantly shift based on the organization’s needs and development — what used to matter or be relevant may not be anymore. If you stay in touch with investors and your metrics, you’ll know if you’re on track or veering off.
Each time you evaluate income and investor plans, consider your exit. Do you want to grow fast and sell early, or would you rather be there for the long haul to see how much gains you can acquire?
Adjust targets as necessary to stay aligned with your career objectives. Other considerations may be family planning, hiring a dream team or moving to a new area. Would your startup’s essence remain intact?
Strap In
Money will have to come from somewhere to make things work. You could do it alone, but you don’t have to — bootstrappers and funding have each led to diverse, prolific businesses worldwide. All you have to do is review your needs, eligibility, goals and security to find out what’s right for you.
