Starting a new business is no cakewalk, and one of the biggest challenges most founders face is securing adequate funding to get their venture off the ground. Whether developing a cutting-edge tech product, launching a trendy e-commerce platform, or revolutionizing an industry with your innovative service, having a solid funding strategy is crucial for success.
Most entrepreneurs begin their entrepreneurial journey through bootstrapping. According to Fundera, around 77% of small businesses and startups use their personal savings to run their startups.
When you bootstrap your startup, you don’t rely on significant investments or loans from banks or investors to fund your operations. Instead, you use your savings, credit cards, or the revenue generated by your business to cover your expenses and fuel your growth.
Bootstrapping requires you to be scrappy and make the most out of what you have. You might need to wear multiple hats, juggling different roles and tasks to keep costs low. For example, you might be the CEO, the marketer, the accountant, and the customer service representative all at once.
It’s even impossible to imagine that you get immediate funding from VCs and angel investors as soon as you get your business launched.
You’d be surprised to know that several big companies, including Microsoft, Oracle, Apple, MailChimp, and HP, among others, were all bootstrapped by their founders.
Bootstrapping: A Perspective
Initially, things will be difficult, and you’ll have to take care of every small and big need of your firm. Bootstrapping gives you full power to run your business without any dilution of control. But it may not be appropriate when you wish to scale up your business.
In such a situation, you need to look out for alternative sources of funding, including reaching out to Venture Capitalists (VCs) and angel investors.
But before you go for alternative sources of funding for your startup, let’s analyze the pros and cons of bootstrapping.
Pros of Bootstrapping:
- You need not exert any effort to pool resources from investors.
- You can run the startup in your own way.
- You can prioritize areas where you need to spend funds.
- It helps you identify the right channels of marketing to make money.
- You can save your pitching time and utilize the same developing your startup.
Cons of Bootstrapping:
- It is not appropriate if you wish to scale up your business.
- You may never get vital tips from angel investors and VCs, which can help you in your entrepreneurial journey.
- Getting funded also acts as a validation of an idea.
- A high degree of financial loss is present in bootstrapping as you have to manage everything on your own.
- Bootstrapping prevents startups from taking risks, making you a bit complacent, which can hinder your firm’s growth.
Here are a few tips for sourcing the necessary funding for your business
Entrepreneurs and startup founders can make use of crowdfunding platforms to pitch their business ideas and raise funds.
Crowdfunding platforms provide an online space where you can showcase your project or business idea and explain why it’s worth supporting. You set a fundraising goal and a specific timeframe within which you aim to reach that goal. People who resonate with your idea can then choose to contribute money towards your campaign, typically in exchange for rewards or early access to your product or service.
The power of crowdfunding lies in its ability to bring together a community of like-minded individuals who believe in your vision and are willing to support it. It allows you to tap into a larger pool of potential investors or customers, who not only provide financial support but also help spread the word about your project through social media and word-of-mouth.
List of leading crowdfunding platforms to fund your startup –
Another ideal strategy to expand your business is securing funding from angel investors. Angels are always looking for exciting startups and visionary startup founders to work with them and invest their money. If you’re interested in receiving investment from angel investors, you need to connect with them and pitch your startup for funding. You can use a pitch deck to showcase your company’s products, services, and long-term vision attractively.
Who are angel investors?
Angel investors are individuals who invest their own money into early-stage startups in exchange for equity or ownership in the company. They are typically successful entrepreneurs, high-net-worth individuals, or professionals with industry expertise. Angel investors not only provide funding but also offer mentorship, guidance, and valuable connections to help startups grow and succeed.
List of Angel Groups actively looking for early-stage Startups-
- TiE SoCal Angels
- Tech Coast Angels
- Band of Angels
- New York Angels
Click here and join the group to get an access to list of global Angel Groups
Venture Capitalists (VCs)
Just like angel investors, you can also reach out to venture capitalists for funding for your business. VCs tend to invest a lot of funds into promising startups. Their purpose is to pull out once your startup goes to the IPO phase.
Venture capitalists (VCs) are professional investors who provide funding to high-potential startups and early-stage companies in exchange for equity or ownership stakes. Unlike angel investors, venture capitalists typically invest other people’s money, often from institutional sources such as venture capital firms, corporate funds, or pension funds.
Venture capitalists play a crucial role in the startup ecosystem by providing substantial capital to companies with the potential for rapid growth and significant returns. They seek out innovative and scalable business ideas with the goal of generating substantial profits upon a successful exit, such as through an acquisition or an initial public offering (IPO).
However, the biggest drawback of VCs is control. Once they invest a huge chunk of money into a startup, you can expect them to micro-manage every aspect of your business. In addition, you have to take their opinion on every big and small matter.
You can seek loans from banks and other financial institutions when all other options fail. All you need is to have a solid and convincing business plan ready to convince the bank why you need a loan and what you will do with it.
You may also need to explain the profit forecast and time of maturity of your business to the bank officer. Once the bank gets convinced, it’ll offer you the loan. However, it will charge a high rate of interest as applicable.
But when you secure funding from VCs and angel investors in exchange of equity, you need not pay any interest to them. As they will share profit with you at a predetermined rate.
Government Grants and Loans
Governments often offer grants specifically designed for startups. These grants provide non-repayable funds to support various aspects of a startup’s development, such as research and development, product innovation, technology adoption, or market expansion. Grants can be a valuable source of funding as they do not require equity dilution or repayment.
Alongwith this, Governments may offer loan programs specifically tailored for startups. These loans often come with favorable terms, such as low-interest rates, longer repayment periods, or flexible repayment options. Startups can use these loans to fund their operations, product development, or expansion plans.
Concluding thoughts –
Most business firms and startups initiate their journey through bootstrapping. Once the business requires additional funds for its expansion and management, it has to seek funding from other sources.
Many firms don’t survive because of the scarcity of funds. Every startup must make sure that its runway is balanced and the burn rate is manageable.
It’s even better to get in touch with angel investors early on as it’s not easy to convince them for funding. You should have a methodical approach to reaching out to angels with a solid plan. For this, you should have your pitch deck ready, along with other information that angel investors usually scrutinize before saying yes to any startup funding proposal.
I’m the co-founder of Startup Steroid. Being a founder/ co-founder (of multiple businesses) and investor (in multiple startups) myself, I experienced the challenges that an investor and a founder face. So, we built a network of 2,000+ Investors, Startup Founders, and Ecosystem Partners since its foundation and still growing. We empower innovative ideas by providing direct access to smart money and meaningful networks.
I am also the CEO of SPV Hub.