Bootstrap funding vs. Investment funding

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This is a searing question for the trepidatious would-be entrepreneur about to ‘startup’ their first startup. It will change the very nature of the company, how much influence you have, how much capital you have and how it will grow – so it’s not something to take lightly.

What’s bootstrap funding?

Bootstrap funding is a fancy name for being self financed. That’s it – finance your own business from your own savings account and be without the entanglements of the ideas of outside investors. You’ll be without their money too. It relies on extremely minimal borrowing to the point of insignificance, but it comes with complete control over the business in the face of frugality.

Some famous bootstrappers:

  • Apple
  • Microsoft
  • Coca cola
  • Dell

What’s investment funding?

Pretty self explanatory but I shall explain regardless. This is where angel investors, venture capitalists and outside shareholders shoulder a lot of the bill for your startup. You get more capital from investment funding but you lose sole oversight as your investors will want a say in the business in return for their money. Think ‘Shark Tank’. You will be pitching your business to those with the dollar bills you desire.

Some famous investor funded businesses:

  • GoPro
  • WhatsApp
  • FitBit
  • Oculus VR

Bootstrapping benefits

  • In a nutshell this comes down to control and a lean, savvy ethic. You will be forced into frugal, canny business decisions by playing with your own limited coin (not millions of other people’s dollars) and your control will be off the charts.
  • Bootstrap funding is often favoured due its focus on being a lean model with the founder being in complete control. If you are a control freak, self motivated and have a fully formed idea (on top of a healthy savings account) look no further bootstrap Bill, this one’s for you.
  • This approach emphasises making money not spending it. Investor funding by comparison often involves a lot of decision making about how to spend money. By choosing the bootstrap method your aim will be making money immediately. You will value your limited resources in a way that is counter intuitive if you have a few million to play with. You will be spending your efforts and time working to extract as much value and profit from what you have, building a strong and thrifty ethic that will play well in the years to come.
  • You will become more inventive, your thinking will be well placed outside the box and you will be almost forced into a scrappy ethic of being ‘streetsmart’. Without oodles of resources you will need to get good quick, negotiate ruthlessly and your innate drive to get your business off the ground quickly will be supercharged.

Investor funding benefits

  • This really amounts to having a business idea which exceeds your current savings and/or experience level. If you have a grand idea, a fully formed business model and a knowledge it will be a booming business, attracting investors is a fantastic way to drive a project bigger than your boots.
  • Without the distractions and limitations of a small and personal cash funnel you can make quick investments and decisions with a larger pool of interest free cash. If your idea is heavily investment based, look no further.
  • A major benefit here is also the access you are granted to your investor’s business contacts, knowledge, experience and ideas. With a wider experience pool and Rolodex of  people at your fingertips, you will find a vast host of new options and avenues open to you that would be unavailable on your own.
  • It keeps you accountable. With investors heavily…errr…invested… in your venture, you will be pushed to drive a thriving business more so than solitary motivation would. This accountability may keep you on your toes but you will have a host of support and motivation backing the business that often leads to quick gains and strong profits. All hands are on deck.

 

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