Since the majority of the posts on Bootstrapology will cover bootstrapping exclusively, I thought it fitting to dedicate at least one of my first articles to the other oft-travelled startup path…the VC route. I actually started this post with the intention of writing a polarizing rant against VC funding. But I have to say, there are definitely some real benefits for startups to take on venture capital, and I think it’s a perfectly fine direction for many startup scenarios. In fact, full disclosure, I’m currently a co-founder of a company that has raised several million dollars in angel and VC money…and below, I’ll go over 5 compelling reasons to go down the VC path.
Don’t worry though, I plan to follow up this article with a 3 part series on the benefits of the bootstrap way!
Build on Someone Else’s Dime
For starters, spending someone else’s money is far easier than spending your own. As any entrepreneur can attest, business expenses rack up pretty fast, even for the most frugal bootstrapper. Small bills start to add up, like server costs, getting your entity business setup, accounting costs, hiring designers or engineers, and even all the cups of coffee you buy while squatting at a cafe all day working. When you’re building something from nothing, and not earning a dime on your efforts in the beginning…these small bills add up quickly.
And say you’re one of the brave ones who totally quit their day job to pursue this new startup full-time…well, you can double your stress level, cause not only is there this brand new set of startup bills you’re on the hook for…the consistent income you once had to pay your normal personal bills has now vanished. You’re now living off your savings…and your cash burn rate becomes a very real stressor to your business…and to your life.
The challenges of launching and running a startup is hard enough, even without the stresses of financial woes. For better or worse, VC financing gives the entrepreneur freedom from some of these cash flow problems, and allows the entrepreneur to focus on growing the company without the distractions of a dwindling personal bank account.
VC backed companies also usually reaps the benefits of deep business connections. Along with money, the best VC’s also have access to a wide network of other startups, business resources, and smart advisors that can potentially help your startup succeed. Whether it’s help getting your first customer, a strategic partner, or a key vendor…VC backed companies can gain access to the connections of their investors.
When there’s big money involved, there’s usually tons of resources that come along with it. Bootstrapped startups, however, are often solitary operations. You don’t have powerful investors looking out for you, incentivized to help you make the connections your business might need. While there’s a large ecosystem of resources and companies built around venture backed startups…there’s practically no ecosystem for bootstrappers in comparison. As a quick example, just look at the existing conferences for the 2 different audiences: Launch Festival, targeted mainly for venture backed startup, 15,000 attendees. Microconf, targeted mainly at bootstrappers, 250 attendees.
If part of your growth thesis involves gaining access to business connections you can’t otherwise get on your own…the help of a well connected VC can likely help expedite that connection.
No matter if you’re a bootstrapped startup or a VC startup…one of your hopes is to grow fast. Having more money usually lets you grow faster. When you know you have a product that customers want and are willing to pay for, the equation for growth is simple…and often the answer involves spending more to earn more. If you’re financing a healthy growth pattern with the startup’s own revenue, often cash is your bottleneck for growth. With an external funding source…you just simply have more resources to execute on your goals faster.
This is where VC’s come in. Often, their main thesis is to infuse you with so much capital, that you can deploy it mostly towards growth. They typically bet on startups that already have a great product, happy users, and just need money to ignite their already existing growth rate. VC’s see themselves as the source that adds fuel to the fire…and they are generally happy for you to burn through that capital as fast as possible to see how big that proverbial fire can get.
If your thesis is to grow fast at all cost, you’ll be completely aligned with most VC’s operating thesis…and with their cash infusion, you’ll have the funds to pursue many of your growth strategies.
I’m not saying that press is a sustainable, or even a good growth channel, but any press coverage most definitely doesn’t hurt…especially when you’re a startup, and no one even knows you exist. Arguably, some initial press can potentially help get a startup their first users…or at the very least, some great backlinks from high authority sites for SEO purposes.
The press loves covering venture backed startups. For better or worse, it’s all just part of the industry echo chamber. Journalists need to be on top of the next “hot startup” and who’s placing bets on which horses. Venture capital is a $60 billion dollar industry, so you can bet that media outlets need to report back on every startup for industry insiders.
Are these same media outlets going to cover 2 bootstrappers in a garage?…probably not. If you can afford it, and if you have a compelling product and story, you can expect to pay a PR company on average a $10k per month retainer to try getting you press, but there’s also no guarantee you’ll get any of the top tier outlets to even give you a mention. On the other hand, you can be in a well-known tech accelerator, have no product, have no customers, and be the same 2 guys/gals in a garage, and you’d probably be covered by several top tier tech media outlets. It probably makes no sense, may seem completely unfair, but these are the rules of the game and you’ll get press benefits from merely joining the path of the VC club.
VC Funding is Sexy
This might sound facetious, and perhaps it is, but being a VC backed company just sounds impressive. VC backed companies are usually looked upon like pros in the industry who’ve demonstrated a certain high level of competency, while bootstrapped startups are often seen as amateurs tinkering around on the outskirts of the industry.
As a sports analogy, a VC startup is like playing for a multi-million dollar professional franchise, and a bootstrapped startup is like playing pickup games at the local park. As a music analogy, a VC startup is liked getting signed by a major record label, while a bootstrapped startup is like cutting CD’s in your bedroom and telling your friends you’re an “indie” artist. Only an elite few can play professional sports and get signed to a record label…almost everyone can go to their local park to shoot hoops and record tracks on their laptop.
In my opinion, both camps have perpetuated these stereotypes. People tend to aspire to greatness…and somewhere along the way, right or wrong, startup entrepreneurs, and perhaps even bootstrap entrepreneurs, have equated VC funding as a sign of greatness and the thing to aspire to.
When deciding between bootstrap versus VC path…the choice is rarely black or white. The reasons listed above are real and compelling. In the next three posts, I’m planning to write about 3 personal reasons why I think bootstrapping is perhaps a more compelling path. Here’s links to those articles below: