Bootstrapping vs Funding: Which is the Right Strategy to Fund your Startup
📖 Learning
A Startup is a company that is just on the verge of developing and offering services and products that are not available in the market. Startups are now becoming a significant part of every country’s economy; they are providing jobs to the people of this generation and are carrying huge responsibilities.
They are hugely contributing to the development of the socio-economic conditions of the country. Not only that, through the use of new technologies, they are providing solutions to the problems as well. Every industry is getting to see new Startups and some of them are going to be the future of that industry.
The survival of a startup hugely depends on the fund, if there is no fund a Startup can never see the daylight, it will shut down even before the beginning. So, for preventing from getting shut down, one needs to arrange funds and must invest in the business and these can be done in two ways.
One is getting money funded for the startup and the other one is through Bootstrapped. In this article, we will discuss the difference between funded startups and Bootstrapped startups and what they are all about. We will also talk about which will be a better option for your startup. So let’s get into the business.
“It’s almost always harder to raise capital than you thought it would be, and it always takes longer. So, plan for that.”
–Richard Harroch
What is a Bootstrapped Startup?
Pros and Cons of a Bootstrapped Startup
Examples of a Bootstrapped Startup
What is a Funded Startup?
Pros and Cons of a Funded Startup
Example of a Funded Startup
Funding Vs Bootstrapped Startup: Factors That Entrepreneurs Must Consider
FAQ
What is a Bootstrapped Startup?
Bootstrapped startups are those businesses, where you don’t take capital from an outside source or venture capitalist and totally depend on your own funds for the survival and growth of the business. There is no process for external funding here, you are the leader here and you need to take all kind of decision that is necessary for your business.
Pros and Cons of a Bootstrapped Startup
Pros:
- The thing about bootstrapped startups is that the founder doesn’t have to depend on outside investors for the funds and the ownership solely belongs to the founder.
- The founder of the business needs to just focus on the business products and services and there is no need for issuing equity.
- The control of the business belongs to the founder and they don’t get succumbed to any pressures by anyone and have the control to take any important decision regarding the business.
Cons:
- Lack of funding from investors becomes a financial risk for the business.
- There are no investors who can suggest and help the founder in making decisions. Plus, the lack of connections of different investors leads to a slower pace in gaining the trust of the public.
Examples of a Bootstrapped Startup
GoPro
This company is one of the best brands out there for selling personal cameras that capture video photographs was first founded in the year 2002 by Jill Woodman and Nicholas Woodman. It is a successful bootstrapped startup that has now become a big company that sells high-definition personal cameras.
Nicholas Woodman got the idea of making such cameras that can shoot action photography while he was on a surfing trip to Australia. He funded $10,000 from his own pocket to his business. He did many jobs such as emailing and truck driving and at last, he was successful. In 2004 his company, GoPro sold the first analogue camera of 35mm.
Zerodha
A popular example of a bootstrapped startup in India is Zerodha, Zerodha is an Indian financial services company founded in 2010 by Nithin Kamath and Nikhil Kamath.
Nithin Kamath started trading in stocks at the age of 17. When the market crashed between 2001 and 2002, he lost 5 lakh rupees. He still continued to trade in stocks and later started his own brokerage Kamath & Associates. In 2010 he founded Zerodha.
Now the company has a revenue of 1,093.64 crores INR and is valued at $2 billion. The founder of Zerodha in a series of tweets explained why the company doesn't raise any funding.
Jeenal Jain
What is a Funded Startup?
While starting a business, an amount is needed as an investment. There are some startups who decide to raise amounts from the public as the fund for the company. Here you look out for investors also known as venture capitalists, who are actually interested in your business and they provide you with your required amount of capital in return for your company’s equity.
Pros and Cons of a Funded Startup
There are some advantages and limitations that one faces when they chose to raise funds from the public for their business and they are:
Pros:
- Funding from outside provides businesses with lots of opportunities related to finance which in turn becomes a big factor in the fast growth of their business.
- The Investors who are funding the business guide the owner of the startup with their experience, if the need arises.
- The connections of these investors can be a plus point for the startup and it can help them in earning the trust of the public.
Cons:
- When external forces started involved in the business, decisions related to payments, finance, equity by the startup founder become limited.
- The founder loses a big amount of the company to the investors and thus holds a very small part of it.
Example of a Funded Startup
Flipkart: Funded by Venture Capital
This online shopping website was founded by Binny Bansal and Sachin Bansal in the year 2007. The online E-Commerce company that started its journey by selling books now sells everything. In the year 2018, Flipkart got its first fund from Junglee and Helion Venture’s founder Ashish Gupta. After that, Flipkart received $10 million from Tiger Global Management. Tiger Global Management is an American investment firm.
Flipkart keeps getting bigger and bigger with various investments by the investors It even acquired Myntra in the year 2014 for $270 million dollars. In 2018 Walmart acquired Flipkart and became the fund provider of the business and Walmart now owns almost an 82.3% stake in the Indian E-Commerce giant. It has raised almost $12.6 billion. As per reports, the current value of Flipkart is $37.6 billion as of 2021.
Funding Vs Bootstrapped Startup: Factors That Entrepreneurs Must Consider
In the choice between funding and bootstrapped, one must decide what they want with their business. Here they need to consider some factors that would help them in deciding between funding and bootstrapping. Those factors are:
Objective
The main aim of your business is one of the prime factors that help you in deciding the future of your startup. If you just want a profitable business, bootstrap is the option for you. On the other hand, if you want your business to have maximum revenue growth then, external funding is the answer.
Pace of Growth
When you are the only one who is investing in your business, the growth will be slower in pace. As the resources you have, including the financial ones, are limited in nature. While funded business provides resources like new connections and finances thus the growth is way faster.
Control
In a Bootstrapped startup, you have control over your startup. Whatever the important decision is, your call is the last one. On the other hand, funded startups don’t give you that much freedom, where you can take the final decision for your startup as it involves the investors who are funding your business.
Conclusion
In the end, the decision of choosing between funding and bootstrapping is yours. If you decided to bootstrap your business, in the future you can go for funding as well. Whatever you do, you need to consider the factors while making the decision, because the survival of your business depends on this.
Lakshya Singh
FAQ
What is a funded startup?
A funded startup means a business where money is raised from externals or third-parties as an investment.
What percentage of startups bootstrap?
75% to 80% of startup founders prefer bootstrapping their startup.
Is funding important for a startup?
Funding is definitely important for a startup, as it increases visibility in the market and helps in attracting the public’s attention.
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