Deciding whether to bootstrap your startup or take the more common fundraising route is usually very difficult. The problem is that there’s usually no right or wrong answer, since there are both objective and subjective factors in the equation. In this post, I’ll try to cover the main objective factors you should consider:
What are your chances for successful fundraising? Fundraising is a very intensive task with no guaranty for success. It’s a full time job that requires a lot of management attention and it’s emotionally draining. Therefore, there’s a tradeoff between developing your business and trying to raise capital. So before taking the fundraising route, you should at least confirm that your chances to successfully raise capital are high enough. To better assess your chances to raise capital, you’re welcome to read my post ‘7 prerequisites for successful fundraising’.
Can your competitors take over the market if they raise capital and you bootstrap? Assuming both you and your competitors have a good chance to successfully raise capital, then the next question is what might happen if they raise capital and you don’t. If you have a strong competitive advantage that is not related to how much capital you have, then you can consider bootstrapping. However, if having more capital can give your competitors a significant advantage, then taking the fundraising route makes more sense.
Can your business continue growing without external funding? Assuming the factors above haven’t determined the route you should choose, then the next questions is whether your business can continue growing without external funding and at what rate. If you’re currently only slightly profitable and don’t have the financial resources to grow at a rate that would at least reserve your competitive advantage, then it might be a good idea to raise external capital. On the other hand, if you have enough resources to grow your business at the required rate, then you should carefully consider whether it’s a good idea to lose focus on a long and tedious fundraising process that might even damage your business.
So these were the three main objective factors. On my next post, I’ll focus on the subjective ones, which to my opinion are just as important.