Starting a business can be both an exciting and nerve-wracking experience. You’ve got a brilliant idea, and you’re eager to bring it to life, but the road ahead is full of challenges, uncertainties, and tough decisions. One of the most critical decisions you’ll make as a founder is whether to bootstrap your startup or seek outside investment. In this blog, we’ll share with you some surprising statistics, insights, and advice to help you make an informed decision.

What’s the difference between bootstrapping and outside investment?

First, let’s define what we mean by bootstrapping and outside investment. Bootstrapping refers to funding your startup with your own resources, such as personal savings, credit cards, and revenue generated by your business. On the other hand, outside investment refers to raising capital from external sources, such as angel investors, venture capitalists, or crowdfunding platforms.

What are the benefits of bootstrapping?

Now, let’s talk about the benefits of bootstrapping your early stage startup. The most obvious advantage is that you retain full control over your business. You don’t have to answer to investors or worry about diluting your equity.

Bootstrapping also forces you to be lean and resourceful, which can help you build a more sustainable and resilient business in the long run. According to a recent study by the Ewing Marion Kauffman Foundation, companies that started with less capital had a higher survival rate after five years than those that raised more capital.

Bootstrapping can also be a source of pride and motivation. When you build a successful business from scratch without relying on external funding, you can feel a sense of accomplishment and independence.

It’s like climbing a mountain without a guide or a helicopter ride. You’ll learn valuable skills, such as Financial Modeling for Startups, financial management, marketing, and customer service, that will serve you well in your future endeavors.

What about outside investment?

But bootstrapping isn’t always the best option for every startup. If your business requires a significant upfront investment, such as developing a new technology or manufacturing a physical product, you may need outside funding to get off the ground.

According to a report by Pitchbook, the median seed stage deal size in the US was $2.5 million in 2020, up from $1.5 million in 2016. This means that early stage startups are raising more money than ever before, which can create a competitive disadvantage if you’re not able to keep up.

Moreover, outside investment can bring more than just money to the table. Investors can provide valuable connections, expertise, and guidance that can help you grow your business faster and smarter. They can also help you mitigate risks and avoid costly mistakes. 

According to a survey by CB Insights, the top reason why startups fail is the lack of market need, followed by running out of cash and having the wrong team.

So, how do you know when to bootstrap your startup and when to seek outside investment?

 The answer depends on several factors, such as your business model, industry, goals, and risk tolerance. Here are some general guidelines that can help you make a decision:

• Bootstrapping may be a good option if you have a low-cost business model, such as a service-based or digital product business, and you’re willing to grow slowly and steadily.
•  Seeking outside investment may be a good option if you have a high-growth business model, such as a tech startup or a physical product business, and you need to scale quickly to capture a market opportunity.
• Bootstrapping may be a good option if you have a clear understanding of your target market, customer needs, and value proposition, and you’re confident that you can generate revenue and profits from the start.
• Seeking outside investment may be a good option if you need to validate your product or service, build a team, or enter a new market, and you require expertise and resources that you can’t afford on your own.

In conclusion, starting a business is an exciting journey, and the funding decisions you make can have a huge impact on your success. Bootstrapping your startup can be a great way to build a solid foundation for your business and avoid cash flow problems. 

But if you’re ready to scale quickly or you’ve reached your maximum revenue potential, seeking outside investment can help you take your business to the next level. Whatever path you choose, remember that the most important thing is to believe in yourself and your business. With hard work, determination, and a little bit of luck, you can achieve anything.

Wondering how you should reflect your funding choices in your financial model, business plan or pitch deck? Leave it to us – book a free consultation now.