Why You Shouldn't Raise Capital!

In the age of unicorns, everyone wants to raise money, but that’s not always the best option.

Why You Don't You Need Someones Money

Getting funding can be a fantastic way to ramp up and turn an idea into a company quickly, and to scale that company fast. And if the idea you have for a company is going to require a large team to build it out and your cost of customer acquisition is going to be high then raising capital in exchange for equity in your company could be a great idea. However, for most of us, for most of our ideas, bootstrapping is the way to go, it teaches to your run lean and build a sustainable company in the process.

I’ve been on both sides of the equation, there have been times when I was raising funds to grow a business and others where I was bootstrapping a company to get it off the ground. I’ve also been involved in a partnership where one partners was obsessed with raising money despite not having any understanding of how to run a business, which is why we are not partners anymore.

At DRVR we had to raise capital to grow the business because scaling was capital intensive, we had to build a team with a wide range of skills and we had to fund operations in several countries. DRVR is the type of company that venture funding is good for. But what really built my confidence in DRVR is that even though we were raising funding and getting investments David, the CEO runs the company like it’s being boostrapped. To me that is the smart approach, and it’s far different than my experiences during the dot com boom in the late 90s where companies were spending their capital on all types of craziness, but those are stories for another day.

Focus On The Business

So let’s answer the question of why you don’t need to raise capital, why you can bootstrap the business and grow it slow, or at least slower than you would if you had a massive injection of capital, and why that is likely better for you in the long run.

First, and what I really think is the biggest advantage of bootstrapping is that it allows you to focus on the business, you can dive into day to day operations, focus on improving your unit economics and running an efficient business. When you are raising capital you have to focus a lot of, if not most of your energy on raising capital.

When DRVR was raising funds the CEO and I spent a lot of our time pitching investors all over Asia to secure funding, that was time we did not get to spend on operational work. And the CFO, Damian had to spend just as much time putting together projections and going over offers, again, time he did not get to spend on operations.

When you bootstrap your company and grow from your revenue you don’t have that same time split you will when you're chasing funding.

Sweat the Details

Not having a massive influx of investor cash at your disposal forces you to plan and strategize. You have to keep your spending under control because you are going to feel the value of every cent spent and you are going to want to maximize your returns, like any good business person would.

When it’s your revenue on the line you are not going to take risk without thinking it through. Risk is a good thing, but taking risk without calculating a plan is a bad thing, horrible actually.

Having to rely on your own revenue to build the company keeps your head in the game and prevents you from reaching beyond your means and trying to grow in an unsustainable way.

The media companies I’ve started in the past have been build in this way, I put up some cash to get them going, then used their revenue to scale and grow as it came in. This forced me to learn how to make adjustments to my business model so I could optimize my revenue to grow the business.

Ask Yourself The Hard Question

When it comes down to it, ask yourself if your business is going to be of interest to an investor, or are you better off bootstrapping the company? In most cases you are going to be better off bootstrapping, You can still scale the company, it’s just going to take a bit longer, you're going to have built a sustainable company in the process and you won’t have sold off equity along the way.

Until next time keep taking action to make your ideas reality.