Fundraising vs. Bootstrapping

I started GoWild with about $500. 

It’s a funny story. I had put in a ton of time researching the opportunity, and was ready to really get to work. I remember talking to my financial advisor about my idea, and told her I wanted to spend $10K to start the business. She was supportive. 

My wife? “Are you insane?” 

Now, my wife has been really supportive over the years. She deserves a medal for putting up with the dozens of times I traveled in 2019 alone. She’s been with me through a lot, but she was not supporting me piping $10K of our hard saved dollars into this crazy idea.

It was about this time I found an old checkbook for my wedding photo agency, which I had shut down a few years prior. I thought for a minute, and wondered what I did with the bank account. 

I had forgotten to close it. 

It had $500 in it, so that was my new budget. I was going to use the money I forgot I had.

I put a little more money in here or there, but without a live product (and therefore server fees or additional software), most of our needs were either free services or using licenses we already had through our day gigs. It’s amazing what you can get done with just Slack and Google Drive. 

We started raising money about a year after we started the side hustle. In hindsight, I think we raised too soon. If I were to do it all over, this is one of two or three things I know I would do differently. 

I wish we had bootstrapped longer.

Bootstrapping vs. Fundraising

Bootstrapping is just using your own funding to build your business. Fundraising is selling slices of your company to acquire operating capital. The advantage of bootstrapping is you maintain ownership, more control, and often, more time evaluating the mechanics of the business through slower growth. But there are limitations. 

Fundraising can give you rapid growth. Sometimes that growth is not quality or is growth on a bad bet, though. Fundraising also brings major headaches with control, investor expectations and dilution. 

I’ve been in the startup ecosystem for eight years now, and have met founders from all over the world. I’ve met founders of both breeds—the bootstrappers and the fundraisers. To me—and this is Brad speaking, not the Harvard Business School—there are some clear pros and cons for each. 

And there’s one clear path that I would choose if I were founding a company today. 

Let’s look at it with our Silicon Holler lenses. 

Bootstrapping, pros

Lower capital dependency 

When you raise capital, you spend capital. The best thing that can happen to a founder who is raising is to come in under their goal, because it makes you really analyze your spend. Bootstrap founders are significantly more capital efficient, because it’s their cash. 

Ownership & control

When you’re not bringing in investors, you are in control. You’re making the decisions, and have fewer opinions being hurled at you. This doesn’t mean you shouldn’t find advisors, because outside opinions are valuable (also, not all investor advice is bad—I have a great host of mentors among our investors). Exits are often smaller with bootstrapped companies, but owning 80 to 100% of a company that exits for $10M to $50M can often result in a bigger check than a VC-backed founder who sells for $100M or more.

Bootstrapping, cons

Slow growth

VC-backed companies will buy their way to growth, but I’ve come to see this as an opportunity for bootstrapped founders. It’s a problem that will make you stronger. VC-backed founders can turn on growth with campaigns, but many never establish any meaningful working network effect that can achieve organic growth. It’s exactly why we’ve seen so many VC-backed IPOs crash and burn. Still, there is no doubt that if you’re bootstrapping, you’re likely going to have less exposure. 

Limited resources

I’ve seen so many bootstrap founders complain about not having the resources of VC-backed founders. It’s often even whiney. But it’s a fact—you’re going to have fewer resources, and you have to get scrappy. 

Pressure

You’re going to feel pressure with someone else’s money, but when you’re potentially losing your own investment, it hits differently. I could argue this is an advantage, too, as you will spend more efficiently as a result. But if you’re racking up credit card debt on personal guarantees, it is an incredible amount of pressure to get the business profitable.

Fundraising, pros

Rapid growth

Funded founders can hire niche marketers and will have ad budgets to scale their products faster. With that scale many founders will be able to gain more data, and they can analyze and iterate off that data, rapidly improving their product. This does bring some risk, though, as many VC-backed founders will try to scale multiple (sometimes mediocre) products vs. focusing on one. 

Network

When founders raise—and especially when they raise from VCs—they usually pull in an expansive network of advisors and mentors. These are people who can help you win clients, find more investments, and eventually find potential acquirers. Often this network will pull in advanced tools and discounts on services, too.

Validation

Having well-known investors, especially strategic investors, will help you with street cred. It’s why you see founders dropping “YC 24” in their titles or on their websites (“YC” or Y Combinator is the premier accelerator in the country). 

Fundraising, cons

Ownership & Control

Fundraising is bringing in business owners. It’s that simple. You are selling off small slices of your company, and the more of that pie you sell, the less of the recipe you may get to pick. Some investors are silent partners—but some are rowdier than a drunk little league mom in the playoffs. You sometimes don’t know which you’re getting until the deal is done.

Prioritize short term gains + bad benchmarks

Raising cash forces a founder to focus on short term wins, all so they can hit benchmarks that unlock the next funding milestone. Companies will often even change their road maps based on investor feedback and exit opportunity, scaling products that excite investors instead of focusing on long-term value and growth.

Shifting fundraising climates 

Companies that raise capital establish large burn rates that are unsustainable without further funding. Often companies are requiring four, five or even six funding rounds before getting profitable (and sometimes not even then), and these companies are vulnerable when investing climates shift. 

We are currently living through one of the largest shifts in the investor ecosystem in the last 20 years. When interest rates were cheap, raising was easy. Then nearly overnight, the landscape shifted. Consumer habits changed, interest rates shot up, and investors went into holding patterns and shifted their criteria. A lot of companies have suffered and many have been shuttered as a result. 

Valuation expectations 

If you’re a fellow Silicon Holler company, just know the slice you sell of your business could be larger just simply because of where you are. Midwestern and Southern companies often do not get the rich valuations coastal companies get, and they don’t get the same terms. 

Deciding what’s right for you

If I were starting over today with the same concept, I would have not raised our first round in 2017. This would have meant side hustling for longer, but it would have been a better move. We should have focused on our product, and pulled levers that helped achieve organic growth instead of raising and spending 10% of that cash on advertising in an attempt to grow before we really understood our churn. I also raised on a valuation that was half of what I see most early stage tech companies raising at today. 

To be clear, I’m not saying I would have never raised. We would never have gotten to where we are without the support from our investors.

For you, you need to think through what matters most to you. Do you really need the capital to grow, or are you comparing your journey to a coastal founder’s?

Content idea for this week

What did I miss in my pro/con analysis? Do you have any other advice for founders when considering raising? I certainly could have gone deeper, but hey, this is just a newsletter. 

Who I’m listening to: Stephanie Lambring

What I’m reading: “The Things They Carried” by Tim O’Brien

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