Bootstrapping or Fundraising?

“Money makes a startup until the startup makes money.”

If you are a pre-seed startup, ready to penetrate the market with your product but often find yourself thinking - How do I finance this venture? Which type of funding should I choose? How to financially back my startup? Then you’re at the right place!

Let’s consider the two most common strategies - bootstrapping and fundraising. What’s your pick?

Bootstrapping

Imagine funding your startup primarily through your own hard-earned money, savings, some help from friends, family, networks and perhaps grants.

This is the essence of bootstrapping.

Fundraising

Fundraising entails seeking financial backing from external sources, such as angel investors, venture capitalists, or crowdfunding platforms. Investors contribute capital in exchange for ownership (equity) in your company.

But money comes with its own terms and conditions. Let’s highlight a few of those.

So, what’s best for your startup?

Before jumping to a decision, here are some factors you should consider.

• How much capital do you need to get off the ground and reach your initial milestones??Do a cost breakdown/unit economics and quantify it. This is heavily influenced by industry and sector.
• Do you envision slow and steady organic growth, or rapid expansion? Based on your current growth trajectory and market conditions, make a plan on how you want to increase your client base further.
• What is your long-term vision? Venture capitalists typically look for an exit within a specific timeframe, which can influence your long-term goals if you choose fundraising.
• How mature is your market??A well-established market with defined customer needs might be suitable for bootstrapping. Disruptive innovation in a nascent market might necessitate fundraising for rapid development and user acquisition.???? ?

Here’s an infographic to give you better perspective.

Here is some additional advice:

• If you're in the early stages of development, bootstrapping allows you to refine your concept, validate your product-market fit, and build a strong foundation before seeking external funding.
• If your business model necessitates rapid scaling and market dominance, fundraising can provide the necessary fuel for aggressive expansion.
• You don't have to restrict yourself to one path. Consider bootstrapping initially to develop a proof of concept, and then seek funding to accelerate growth later.

Being a founder, you live, eat, breathe your startup, so you know its context better than anyone else. So carefully evaluate your standards for risk and goals within your entrepreneurial journey, and you can select the approach that best positions your venture for success and one that you are most comfortable with.

If you are a founder deliberating the ideal fundraising strategy for your startup then Browndome can help you make informed financial decisions with our guided strategy. For more details on our Financial Consultancy Services visit - www.browndome.com/advisory-services. You can also reach out to us at [email protected].