Self financing – the pros and cons of bootstrapping your business by Ravi Philemon

TL;DR - Advantages and disadvantages of bootstrapping a startup (no outside investment)

Helpfulness - out of 5

Tags - bootstrapping, self financing, pros and cons of bootstrapping, entrepreneurship, initial capital, growth of startups

Questions answered:

  • What are the pros and cons of bootstrapping a startup?

Summary:

  • As much as 90% of all initial funding for startups comes from founders, family, and friends.
  • Pros of bootstrapping:
    • Easy and quick to secure money; not many have to be convinced and no approval process is required.
    • No complexity of adding more partners or shareholders; at times, managing partners can be as much of a challenge for founders as managing the actual business.
    • The founder can decide the direction of the business without having to convince or negotiate with anyone.
    • All profits go to the founder (no dilution effect).
    • The exit process tends to be more simple (no competing interests to negotiate).
  • Cons of bootstrapping:
    • Limited resources can limit the size and scope of the business
    • Limited resources can limit the future growth of the business
    • If the business fails, all the consequences are the founder’s to deal with.
    • The founder may not have all the skills, knowledge, and experience needed to successfully grow the business without top level guidance

Follow up links:

When to Bootstrap vs. Raise Equity,