Global عربي
KSA عربي
Global عربي
So, you want to grow your business. But the perennial question: from where should the finance come?
In this post we’re going to discuss the benefits of bootstrapping – meaning relying mainly on self-financing – versus partnering with venture capital, a riskier prospect that offers the allure of rocketing to the top, but only if you don’t crash and burn on the way up.
There’s pros and cons to these two extreme positions (and certainly a middle ground to be staked out), so let’s break this down and sort out what’s right for your business.
Read more about: Frequently Asked Question About Seed Fundraising for Startups
Maybe you have a cache of personal wealth, maybe you’re simply a rugged individualist. Either way, there’s many sound reasons to bootstrap:
- Full ownership and control. By not allowing anyone to take a major equity stake in your business (as with venture capital, more below), you get to maintain your creative vision, and build the business you actually set out to build.
- For a deep dive on this approach, check out Jason Fried’s (founder of 37signals) book Rework, where he advocates slower, sustainable growth and avoiding the pressure of VCs.
- No dilution means you reap what you sow. Your business’ hard-earned returns are yours.
It forces you to prove your business idea actually works.
Getting a windfall of funding early on can mask your business’s weakness. Without it, your business will only grow by meeting market demand and making customers, a sure path to sustainable growth.
- Financial discipline. If you only have access to money from sales or initial capital, you will be forced to be strategic. This makes for efficient operations.
Some good news: these days, bootstrapping is actually far more feasible than in the past. This is partly because of the explosion of artificial intelligence,
which means that all sorts of tasks that once required staffing up can be streamlined and accomplished for little to no cost. Consider just a few key examples:
- Customer Support - AI chatbots can handle.
- Coding - AI-powered tools like GitHub Copilot, Claude 3 and others can code in place of full-time developers.
- Marketing & SEO - Tools like SurferSEO and HubSpot AI can help with ad targeting.
- Legal - AI tools like Evisort and Spellbook can review contracts and reduce legal fees.
- And it’s not just AI. Other services like cloud computing are cheaper than ever. And the rise of remote work means that when you do need an extra human hand, it’s cheap and easy to hire high-skilled talent for one-off tasks via platforms like Upwork and Fiverr.
All of that said, there’s still a ton of great reasons to pursue VC funding. That’s why many of today’s most successful businesses have taken this path. Consider some of the benefits:
- Speed - While bootstrapping might promote business health in the long-run, let’s not forget what economist John Maynard Kenyes famously said: “In the long run we are all dead.” Without an injection of VC funding, your business could take years to get off the ground. If you really believe in the idea, perhaps you want to speed up the process.
- You may need to beat your competitors to a limited-time opportunity. Some markets have a limited opening until they’re oversaturated.
As an early entrant you might be able to be the big winner. And that might require scaling up now.
- Some businesses simply require a lot of capital or fall within sectors that invariably require a lot of resources. Bootstrapping might be OK for a local pizza shop, but can you fund research and production for your world-changing biotech with self-financing alone?
- Personal finance is risky: Using your own money may feel responsible, but it also comes at a huge personal risk. Any business venture is risky, so why not securitize and spread the risk among different entities.
- Massive networking opportunities: Working with a top VC means you get access to not only mentorship from some of the most successful business leaders, but connections to new customers, future partners in industry and other investors.
- Buzz and credibility: When a VC picks you, it’s a type of seal of approval. It means your business idea is promising. Others will take notice, you may get press attention, and your business can take on a type of momentum that would be unlikely with bootstrapping.
- Global expansion. Some VCs have reach in markets that are way outside your geography. That means entirely new customer bases and corporate partnerships.
- Timely help: a fracturing global environment amid US-China tensions perhaps means you can use all the help you can get navigating trade issues and tech bans that complicate the east-west divide.
Read more about: Venture Capital vs. Venture Debt-What's Best for Startup Founders
Then again, taking stock of the economy around you is important too. In a slow or low-growth environment, bootstrapping may be a better bet, lest you find yourself indebted to creditors or partners and no way to grow fast enough to justify their investments.
This is not merely an academic argument: the IMF recently slashed its growth forecasts for the U.S., China and most countries in light of President Donald Trump’s tariff policies. The Fund also lowered its global growth projection to 2.8% for 2025 from 3.3% in a previous forecast.
Does that mean it’s not the best time to jump into a risky VC-fueled scaleup adventure? Ultimately when it comes down to it, only you can decide.
Read more about: Private Equity & Venture Capital as Asset Class
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
