Bootstrapping your way into the 5th year of operation

Is this the right time to start investing in your startup? How did big giants like Whatsapp, Slack, Uber, Venmo, Groupon and many more startups find success after being founded during a recession?

There has been an on-going debate since the beginning of the “startup culture” about whether or not bootstrapping is a better option than raising outside funds.

Many companies have successfully built their business with the romanticized idea of “bootstrapping” until management decides on accepting venture capital. But what does it take to become a “Black Striped Unicorn” without raising any funds?

Research shows that location is one of the main reasons that affect this decision due to the unavailability of an established line of resources. Two Founders & CEO of Qualtrics and Pluralsight from Utah did not have a concrete plan to raise money and avoiding that option was a function of the place they lived in. If they were to ideate and conceptualize their startups in Silicon Valley, they would definitely pursue the line of involving VCs to fuel growth.

One reason why the “gold rush” is significant in an early stage is that in places like San Francisco Bay Area, especially the Valley, an entrepreneur receives validation from having someone back the company up. It relates back to credibility, which eases up the process of hiring the right talent, expediting marketing efforts and benefitting from the right advisor for PMF.

Although depending on the large influxes of capital from external sources has its perks, it also comes with a few undesirable disadvantages.

The 3 highlighted cons of not operating the business with its own profits are:

1. Losing control of your company: The company ownership is diluted with each round of funding which means compromising on equity for the extra money coming in. As a sole entrepreneur, you're 100% responsible for every decision made in regards to the startup. When rights are shared with investors, they are obliged with the power to question you in every step of the process.

2. Fast-paced results: There are high expectations associated with raising outside funds which result in increasing the pressure for people directly working for the company. Various metrics need to be fulfilled in order to demonstrate the accurate usage of available funds. Comprehending with the prospects and communicating clear achievements becomes key to such avenues.

3. Hindering future growths: Although ideally receiving funds from a conventional source creates more opportunities than barriers, sometimes, it can obstruct the fabrication of potential partnerships with larger organizations, which could result in a billion-dollar valuation. Therefore, I'd recommend smaller companies to be patient about building a high funding worthy company and to use the VCs funds to further expand their business and scale effectively.

There is no standardized formula to answer the question about bootstrapping a unicorn into its 5th year of existence, but the success rate to have made the right decision is always attached to the core competencies of the people involved. Be it their passion, resilience or hard work. Many big giants had initially started as bootstrapped companies, be it Dell, Facebook, SAP, Coca Cola, Microsoft. It is how these companies utilize the resources and manage the finances that matters most.