Bootstrapped vs Funding: Which Is Better for Your Startup? 🤔

a few years ago as my SAS company grew to millions in Revenue I was faced with a major challenge I didn't have enough cash to hire the employees I needed to properly run and grow the company I faced a big decision it was one that could change the course of the company forever and one that I couldn't undo once I had made the decision the decision was whether to raise funding or to continue bootstrapping drip raising funding is such a big decision because it's one that you can't easily undo or back out of later and

when I talk to Founders and they're thinking through whether they should bootstrap or raise venture or raise funding from a more independent Source like Tiny Seed I tell them each of us has to make this decision for ourselves because it is such a big decision but to think about it this way in your personal life money saves you hours and in your business money saves you years so I agonized over this decision for months probably close to a year and in a few minutes I'm gonna tell you what I ultimately decided and why and if

you stick around to the end of this video I'm also going to give you an option for raising money that doesn't involve selling any Equity so here's how to think about funding these days it used to be all bootstrapped versus venture-backed but now there are other options there's this term alt VC or Indie funding that accelerators like tinyseed and fund like indy.bc invest where it's not Venture track funding so really these days I think about it in three buckets there's bootstrapping which is raising no outside funding there's Venture Capital which is the traditional Silicon Valley

approach where you want to become a billion dollar company a unicorn as they say these days it's a Deca corn and you do that at all costs and you are raising every 18 months and then this third option we can call Indy funding or I've heard it called alt VC and again that's an option to where you can raise some money but without the expectation that you're going to continue to raise or set your sights on becoming a billion dollar company the issue with raising Venture funding is it's institutional money and they want a 3X

or more return over 10 years and so they are looking for these outlier outcomes and if you can't become a billion dollar company in General they don't want to write you a check and I have what I call robs one 990 rule this is where I think around one percent of tech startups should consider raising Venture around nine percent should consider raising Indie funding and around 90 should bootstrap or self-fund there are a few loose rules I have or rules of thumb perhaps that you can Implement in your own decision making process you even within

bootstrapping there are two types of Founders there's lifestyle bootstrappers that just want to milk as much profit out of their company as they can but don't want to work very hard maybe they want to travel maybe they want to minimize the number of hours they work and they aren't maximizing for growth they're maximizing for profit if your lifestyle bootstrapper in general you probably don't want to raise because it's going to disrupt your four hour work week if you're what I call an ambitious bootstrapper which is where you've been bootstrapping and you want to sell for

10 20 50 million dollars that's where money will save you years in your business that's where I would consider raising as I had to a few years ago and these days the options are even more ubiquitous and I would say more founder-friendly and of course if you want to build a very large fast growing startup to a billion dollars 10 billion dollars obviously you're going to look at the Venture path I say all of this as someone who has started six companies myself five of them were bootstrapped one of my companies was acquired by a

venture-funded company with 38 million in Venture funding and I worked there for about two years so I've been on the boots rep side I've been on the funded side and I feel like I have a pretty unique perspective that I can lend in terms of the trade-offs of bootstrapping Indie funding and Venture funding I've talked to a few Founders who have raised funding who used to be bootstrappers and now they're what I call mostly bootstrapped where they're not on the Venture track but they did raise some money and Craig Hewitt the founder of Casto said

on raising money money allows you to hire more senior roles than you could afford as a bootstrapper especially when it comes to sales and development senior folks are always more effective than their junior counterparts funding has allowed us to live in the future in that respect so that's one advantage of raising funding but now let's look at the pros and cons of bootstrapping so bootstrapping is simple you maintain full control your capitalization table or the ownership percentages remain very simple you don't need anyone's permission you can run a company for decades and you can take

out the profits the cons are it really is hard mode you're going to move slower you're going to have a lack of let's say mentorship and lack of an instant Network that you would get from Raising funding and not having money money can absolutely and will absolutely hamper your growth I've experienced it firsthand and I've seen it with bootstrapping friends of mine and finally it's difficult or impossible to bootstrap certain types of businesses like you couldn't have built Amazon Uber Google Facebook SpaceX Tesla area there's several types of companies that you just can't build on

their own Revenue now let's look at the pros and cons of raising venture capital and then we'll take a look at Indy funding so the benefit of venture capital is that you have enormous resources because you raise millions or tens of millions of dollars it allows you to move very fast it allows you to attack very competitive markets and to get there quickly VC which is the abbreviation for venture capital is most appropriate in these land grab or winner take all markets and in fact I would say there are it's almost a necessity in those

types of spaces as Craig Hewitt said you can hire more Senior People early meaning not only can you move faster but you take pressure off yourself I know personally that the dollar amounts and the stakes that I'm dealing with running Tiny Seed today far outweigh anything thing I did with drip but I was so stressed at drip all the time about money about being able to make payroll about being able to make that next higher and these days with tiny seeds since we raised 42 million dollars in funding to invest in startups I have a

lot more leeway to be able to hire senior people and move faster in addition you don't have to waste mental Cycles worrying about small expenses I could go on about the stories where I would work on a weekend to optimize our hosting Bill to save 300 400 a month because it made a difference and if you raise Venture you don't have to worry about these small dollar amounts in addition you get an instant Network and you get advisors because you have investors and you have their other portfolio companies and you can build incredible relationships very

quickly just by being part of that group or of that cohort of companies and finally you do get some Market credibility whether you make it to the front of TechCrunch or not if you have Venture investors that are known throughout the world like sequoia or Andreas and Horowitz that shows you are one of an elite few founders who has received funding from them and it is a nice signal that you can take with you to customers and to the market and then the drawbacks of venture of course are that it often kills good businesses because

you must aim to be a unicorn or bust it's growth at all costs and you can often spend money foolishly where you don't have product Market fit yet but you raised all this money and so you have to hire and I've seen companies just thrash around and burn through millions or tens of millions in funding before they were able to get their flywheel going another drawback people often talk about is this loss of control sometimes you don't retain full control of your company sometimes there's a veto right on taking certain actions let's say selling your

company or making an acquisition or certainly taking money out of the company is something that VCS are not going to want you to do so if you want to build a profitable company where you're going to draw out dividends this is not the approach to take and finally boards and board meetings some people love them most people who bootstrap really don't want someone looking over their shoulder they feel like they have a boss and then lastly let's look at Indie funding or alt VC or third wave funding whatever the term term is that you use

for indy.bc and Tiny Seed the pros of this Avenue is their lower growth expectations than in Venture and you maintain a lot of optionality it buys you time to figure out if you're going to be a base hit or a home run you don't take any options off the table I guess you can't truly go back to bootstrapping but you could grow that company and take profits off the table you could raise Venture funding later you could raise more Indie funding you could raise more funding from Angel Investors while still not jumping on the Venture

track and lastly of course one of the big benefits is the advice the mentorship and the community depending on who you take funding from the cons of course are lower valuations than Venture in order for this model to work Indie funds are not the cheapest money Venture will give you higher valuations but they have this unicorn or bust mentality and so with Indie funding you probably will get a lower valuation but then you can exit at a lower valuation this type of funding only supports certain ideas it is a cheat code or a way to

speed up your progress but you're probably not going to start Uber or Facebook without Venture funding and lastly there just aren't as many funding options as Venture you know if we imagine there are hundreds or a few thousand Venture Capital firms in the world there's only a handful of Indie funding options so to wrap up the thought process if you want to grow fast you want to get huge raise Venture if you want to be in complete control even if it's harder you're going to want to bootstrap and if you want to be in the

middle and take some funding to make the journey easier maybe help you move faster without the expectation of a huge exit then Indie funding just might be for you so to wrap up my story with drip what did I do did I raise funding we were right on the edge I was going to raise a single round with no plans to ever raise Venture but what happened instead is we received inbound offers interest to buy the company and it was a big decision point of whether to take investment and go for another two three four

years or to sell the company and since I was able to sell it for a life-changing amount that meant I never have to work again that was the decision we made in a minute I'm going to tell you about a fourth option that you may want to consider but before I do that applications for tinyseed our accelerator are open September 4th through the 17th so if my calendar is correct that's tomorrow head to tinyc.com apply if you are interested in the right amount of funding amazing world-class mentorship for bootstrap SAS Founders and a community unlike

any you've ever been a part of tinyseed.com apply if you're interested in learning more being notified when applications are open or in submitting your application so the fourth type of funding is something that's only really come about over the last five or six years and it's debt funding or RBF now obviously debt has existed for a long time but revenue-based financing that is one click simple I'm not sure it's actually that but it approaches one click simple if you have recurring Revenue there are an abundance of funds that do this now and if you just

Google RBF for SAS a revenue based financing it can be a nice way to raise funding if you have traction now normally you need at least fifteen thousand dollars in mrr and oftentimes it's higher than that and and they'll allow you to borrow let's say three months or six months of that Revenue base and so it can be a way to cover short-term cash crunches it's certainly not a way to raise several hundred thousand dollars much like you'd be able to do from the options I talked about in this video but it is an option

that allows you to put some money in your bank account without selling Equity the obvious drawbacks of course are a sometimes you have to sign a personal guarantee to personally guaranteed a loan and even with those that don't they do take a percentage of your top line revenue and so you're going to be pulling cash out of the business at a time when you need it most to support your growth if you've been considering raising venture capital and you want to dig in further check out this next video where I explain venture capital in under

five minutes