Venture capital funding or bootstrap?

A startup needs money to grow, and there are two main ways to get it. One is by taking in venture capital, an investment offered by a professional investor on the condition that your company sells part of itself. Usually this is done by selling shares in yourself, sort of like selling stock in a public company.

What is more celebrated than getting a job at a prestigious firm? When a company raises venture capital investment.

It is all over the media. VC funding is many times in the eye of the public viewed as business success. Nothing wrong with VC funding. Just wanted to lay that out before you conclude this is about tearing apart Venture capitalists.

At the outset, many startup founders wonder if they should try to get VC funding. It can be a hard decision, because getting funding from venture capitalists can be a mixed blessing. On the positive side, startups that take venture capital often enjoy more time to develop their business model as well as far greater resources compared to startups that do not. Some get far more. Yet there are also cons to taking an investment from venture capital funds that must always be considered.

Getting an introduction to VC Investors can take months, if not years. It is a very demanding process that if not managed well can take you off building the company. But bootstrapping with no steady cash flow can be a nightmare.

I wouldn’t suggest looking for VC investors in your early stages. I am not an authority in the subject, but I have seen so many businesses give out equity too early on, especially when they have no clear understanding of the effective use of capital or the actual worth of the business venture.

But occasionally stepping out to speak with VCS can give you so much valuable feedback and allow you to organize your business venture to be investment-ready.

Bootstrap to get your company off the ground. When your company gains some traction or starts generating real revenues venture capitalists will start circling.

You need to focus on experimenting until you have a sound business model. Crowdfunding or Angel investment might help at this stage if you can’t cough out the initial financial investment required to get your company started. Spending a sizeable amount of time bootstrapping will allow you to focus on building a healthy business model very early on in your business.

It is really difficult creating a sound business model when you have VC money up your chest five years down the road. It is easy when your business has a way of generating revenue right from the start.

Some people argue they need VC money to scale very quickly. But why do you want to scale quickly when you haven’t figured out the nitty-gritty of the business? If you are building an app, you might need to scale quickly, but for most companies making sure you have a good product and business model should be your top priority.

Nail the business before you scale. You control the negotiation table or can at least wing some power if your business already has real financial figures, users or quantifiable traction. CNN or BBC feature if it doesn’t translate into value for the company does not qualify in this case.

Early-stage startups are better off bootstrapping until they have enough skin in the game. If your business is already raking in profits or considerable revenue figures, you have a sound business model and you are ready to scale, VC funding can do you a lot of good.

This doesn't mean that bootstrapping is better than VC. It's just a different way of doing things; some startups work better without VC, others don't. For example, funding can enable you to hire more people, which is essential if you need to grow your customer base fast. Another advantage to VC funding is that a lot of it comes in the form of advice, for instance about sales, marketing and finance—your VC may know something about these areas that you can use. Furthermore, there are some kinds of problems—particularly those relating to sales—that are better solved with access to larger markets and/or more customer purchasing power.

In the end you have to decide which type of financing method is right for your company.