It’s Not Bootstrapped vs. VC
From Hillel Cooperman‘s “Bootstrapped vs. VC Funded–Who is Likely to Make the Most Money?”
I bet that founders of bootstraps end up earning more money over the long haul out of their businesses than founders of venture-backed firms. The rare IPO may spike the numbers in the other direction, but I’d love to see the reality.
The question is, at a startup’s formation, is it better to focus on VC or revenue as the way to fund the business. That’s the first choice you get to make.
I think the odds favor bootstrapping since something like 1 in 200 firms are funded that seek funding without revenue, while somewhere between ten and thirty percent survive five years. You have to compare the number of firms who seek VC to the number of firms that attempt to bootstrap.
The next question is: if you have successfully bootstrapped the firm to a reasonable plateau that’s sustainable, do you spend time seeking outside investment or continue to grow based on revenue. Here there are a number of factors that make it a much more case by case decision:
- competitive landscape
- addressable market size
- use of funds (do you have a reliable model for generating demand)
- do the founders have the desire to grow the business enough to offer investors an acceptable return
My suggestion is that you seek funding when you have a business that both requires and merits it.
Marc Hedlund left a comment on “Bootstrapped vs. VC” blog post that I think captures a valuable perspective: “I tend to believe you’re probably right that founders of bootstraps are more likely to have a positive return. I also suspect, though, that the average return is higher for positive outcomes of VC-backed startups. (In other words, bigger gamble, bigger return.) I’d be interested to know if that’s right, though.”