You don’t necessarily need or want funding. Instead of getting an investment you can ‘bootstrap’ your company.

The term comes from the phrase “pull yourself up by your bootstraps” and means to rely on your own resources. Depending on the nature of your business, it may be easier than you think. You can consider bootstrapping if you can follow these steps:

1. Start with assets that you have. This usually means starting by whatever equipment or resources you can beg or borrow and combining it with your skills and imagination to produce an initial service or product – no matter how minimal. It may also mean investing a small amount of your own cash that you are willing to risk.

2. Consider customer funding. In other words, see if it is possible to get your customers to pay you in advance, even if it’s a partial deposit which enables you to cover early costs (like materials, contractors, etc.)

Bootstrapping has several advantages compared with seeking investment. Before you decide to seek funding you should weigh the trade-offs. Taking on investors means that you must be prepared to compromise on your personal agenda and reasons for building a business. Investors are putting in their own money in order to make a return, and they will make this a priority for entirely legitimate reasons. If your priority is lifestyle, creative expression, independence and/or saving the world, it will potentially conflict with investors’ priorities. If investors are not satisfied at any stage with your team’s ability to manage the company’s growth, they will replace you.

In order to realise the return on their investment investors will need to ‘exit’, whether it be by acquisition or taking the company public. They will pressure you to do this as soon as you can to obtain an attractive valuation. If your dream is to run your own business for the rest of your life, you will be in conflict with your investors agenda.

You should also keep in mind that getting funded isn’t easy. It requires time and effort over multiple rounds. This means that your management team will spend months distracted by the need to pitch for funds and negotiate. This is time that a bootstrapped company can spend focussing on customers and product development.

Receiving significant investor funding can also compromise discipline. If you have too much money, you may not go as fast as you can, and you will spend your money less carefully than if you had more limited resources.

Another consideration is that in order to provide an adequate rate of return for investors and yourself, you will need to build a much bigger company than if you just go it alone. As Robert puts it:
“The personal upside for someone who owns 5% of a company that sells for $100 million and the person who own 50% of one that sells for $10 million is the same … and a lot more companies sell for $10 million than $100 million

Given the factors above, you should only go for investment if the following applies:

1. Your idea is too capital intensive to bootstrap

2. You really believe that investment will accelerate you and help create a company which will be valuable enough to compensate you for the equity which you will be giving up

3. You value and welcome the support and advice of experienced outsiders enough to give them partial control of your business

4. You value and welcome the connections and introductions professional investors can provide enough to give them partial control over your business

Even if you do decide to go for investment, you might want to wait and go as far as you can by yourself.

The more you can accomplish by yourself the greater the value of the equity you will be giving up in exchange for funds and therefore the greater percentage of your business you will retain.

The value of your business increases as you ‘derisk’ it by reducing uncertainties such as whether there is demand, whether you can build it, whether your route to market is sounds, etc. The amount of evidence through traction that you can provide will also make it easier to get funding.

More to come - stay tuned!

---

Check out previous parts:

Part 1 - Intro

Part 2 - Minimum Viable Segment

Part 3 - Job Story

Part 4 - Market Size

Part 5 - Value Proposition

Part 6 - MVP

Part 7 - Customer Adoption Journey

Part 8 - Marketing Tools

Part 9 - Differentiation

Part 10 - Team, Assets & Partnerships

Part 11 - Finances