It’s the timeless, age-old question for start-up companies: Should you look for venture capital (VC) to begin your business — trading ownership of your product or idea in exchange for investment — or do you bootstrap, taking on all the responsibility and finding organic ways to fund?
The answer for every business, and for every entrepreneur, is different. Here are the basics of each option:
Bootstrapping, while potentially uncomfortable, puts the onus of the operation on your capable shoulders. You’re finding ways to uncover the capital to run your business. Perhaps the biggest key to bootstrapping is overhead. If you offer a product or service that costs little to produce or has very few built-in costs, you’ll have more flexibility when it comes to supporting the business financially. A small, service-oriented, home-based business, for example, is ideal to self-fund. You may also choose to self-fund if you have enough funds in reserve to begin with and you’re so convinced in your product or service that you don’t want to forfeit any potential revenue. If you do have costs invested in the business, you have to believe you’ll recoup them in an acceptable amount of time. Bootstrapping is the old-school, do-it-yourself way to start a business, no strings attached.
Not all businesses are possible simply by bootstrapping. Suppose you have a product or idea that requires elaborate production or a team of staff to make a reality. The overhead of office or manufacturing space, salaries, and equipment requires a sizable investment. Many startups don’t have that capital ready to go. In these cases, using venture capital can help to turn your concept into reality. VC firms exist to buy into businesses they believe show promise in return for a portion of the company. Should the business flourish, VC partners can sell their shares for a profit on their investment, or they can hope for a larger company to purchase the startup, and make a profit then. As a small business owner, choosing to borrow is acknowledging you need someone else’s capital to make your idea a reality. You give up a portion of your businesses and relinquish some control — but you have the funds to build the company you envision. You have to ask yourself what you ultimately plan to do with the business once it is successful.
Have you ever felt the entrepreneurial bug to launch a startup? What funding option was right for you?