Founders face a crucial challenge on starting a venture, whether to bootstrap or go for investment.
Bootstrapping is a situation where an entrepreneur or startup founder starts a company/business with very little capital. They rely on their own money rather than outside investments or funding. This capital is better understood as personal finances used for starting a company, operating revenues, product development & marketing, etc.
Investment is more of outside finances that founders and startups owners acquire to run their company’s operations or even start their company. These investment opportunities could be in the form of winning grants, funds, targeting angel investors or venture capitalists, etc.
It depends on the nature of your startup which option you should avail. We have rounded up some of the potential pros and cons of going for either of the two options to help you decide where and when to use the two for your business.
A startup’s growth matters a lot. If you are interested in growing gradually and optimizing your product on your own, bootstrapping is viable for you but it you want to make a quick appearance in the market, investment should be your priority. It should be noted that every business cannot be bootstrapped, sometimes you need money to launch at a larger scale.
2. Investor’s demands
Investors often have a say about how you should manage your affairs. It sometimes turns into him dictating your every move which totally obstruct you from achieving your vision. But sometimes investors believe in founders and let them lead the way. You will find such an investor very helpful. You need investment if your product aims to cater a larger audience and needs money to achieve that. Otherwise you need to opt for bootstrapping as it gives you complete freedom to steer the startup in your desired direction.
Time is of great essence. As you need to stay ahead in market and be the first one to launch your startup you need to do it quickly. For that investors may be of help as they can get you in touch with the people who can help you figure out how to do it all quickly but some investors will keep you on a tight leash and you may be asked to complete your product on a given deadline which mounts immense pressure and it may result in failure on founder’s part. However when you are bootstrapping no conditions like that arises except competition.
When you are bootstrapping you own the whole thing whereas investors demand shares or equity. Also in case if investors get suspicious of your success they can leave you. Bootstrapping can avoid that. In a situation where you don’t have the resources to launch it on your own investment is your solution. On the other hand it is not bad to trade some equity if what you can achieve something betterly with the help of investor.
When you are bootstrapping you need to invest your profits too which is not good if you have hired people for certain jobs. The won’t work for you unless they are going to get paid. With investment you don’t have to worry about people leaving you for such reasons.
6. Financial Freedom
With bootstrapping you can spend wherever you want without answering to anyone whereas investors often have a say where you should spend the money which can be counterintuitive because he won’t see what you see from your perspective.
Bootstrapping doesn’t come with technical assistance of experts. You have to figure out all on your own. One of the main benefits of going with an investor is that he will connect you with skilled persons and you’ll receive much needed assistance to make your startup even better also you’ll able to make some contacts in the industry.
Having an investor gives your startup some credibility. There is some glamour that comes with investment and people start to believe in your idea by saying if it wasn’t worth it why did it get investment. It is great because startups major concern is about visibility and you gain significant exposure with the investment label attached. On the other hand with investment comes great responsibility because now it is the reputation of investor that is at stake too so he may put you under pressure to deliver and maintain his good image. Also, any blunder becomes a public blunder because you have a larger audience now.
Bootstrapping and Investments are both crucial for a startup to function and survive. The only difference is to know when to use them and the right type as well.