Why Startups Should Bootstrap Before Raising Capital

Bootstrapping refers to the practice of starting and growing a business without external funding, relying on personal savings, revenue generated by the business, and careful resource management. On the other hand, a seed round involves raising initial funding from external investors to help accelerate a startup’s growth. Bootstrapping before raising a seed round can offer several benefits for startups.

1. Proof of Concept. Bootstrapping allows founders to validate their business idea and prove its viability in the market before seeking external funding. This demonstrates to potential investors that the business has real potential and reduces the risk associated with investing.
2. Lean Operations. Bootstrapped startups are forced to operate with limited resources, which encourages efficient use of capital. This lean approach often leads to creative problem-solving and a focus on building a sustainable business model from the outset.
3. Control and Ownership. When you bootstrap, you maintain full control over your business and don’t have to dilute your ownership by giving away equity to investors early on. This can be especially important if you have a clear vision for the direction of your company.
4. Better Valuation. By proving your business’s value and generating revenue on your own, you’re in a stronger negotiating position when it comes to raising a seed round. Investors may perceive your business as more valuable, which can lead to a better valuation and terms.
5. Learning and Adaptation. Bootstrapping encourages a close connection to customers and their needs. This direct interaction provides valuable insights and can lead to adjustments in your product or service, increasing its chances of success when you do decide to raise funding.
6. Focus on Revenue. Bootstrapped startups often prioritize revenue generation from early stages. This focus on monetization is crucial as it ensures the business is sustainable and less reliant on external funding for survival.
7. Reduced Pressure. External funding comes with expectations from investors to achieve certain milestones within specific time frames. Bootstrapping gives you the freedom to build your business at your own pace without the pressure of meeting investor demands immediately.
8. Investor Attraction. Successfully bootstrapping and demonstrating progress can make your startup more attractive to investors. They’ll see that you’ve already taken significant steps to build a viable business and are seeking funding to accelerate growth, rather than just survive.
9. Higher Control over Spending. With your own money on the line, you’re more likely to be cautious and deliberate in your spending. This discipline can lead to more prudent financial management as the company grows.
10. Stronger Team Cohesion. Bootstrapped teams often have a strong sense of camaraderie and shared purpose. The experience of building a business from the ground up can foster a resilient and determined company culture.

    

While bootstrapping offers many benefits, it’s important to note that there are also limitations. It might not be suitable for all types of businesses, and some startups may require external funding to develop complex technologies, enter highly competitive markets, or scale rapidly. Ultimately, the decision to bootstrap before raising a seed round depends on the specific circumstances, goals, and resources of the startup. At my first start-up Pringo we bootstrapped before we took our first outside funding. I have a chapter about pringo in my book Principles Of Business Success. For a free Audio link message me on Instagram @Yazdinian You can also order one on Amazon, or Audible.