TL;DR - 7 disadvantages of venture bootstrapping
Helpfulness - 4
Tags - startup, financing, capital, bootstrapping, cons of bootstrapping
- What are the disadvantages of venture bootstrapping?
- What is the “right way” to bootstrap a company?
- The disadvantages of venture bootstrapping are:
- Undercapitalisation: lack of capital can hinder ventures from obtaining resources necessary for core product development.
- Product and organic development: some business models are simply better off in the long run if larger amounts of capital is available since the beginning (product development).
- Credibility: startups backed by well-respected investors are generally more recognised and trusted; self-funding might highlight startups’ lack of resources (less credible to customers)
- Business potential and valuation: outside funding signals startups’ potential and founders’ intentions in building successful businesses (given the effort it takes to obtain funding). It also increases changes of acquisitions given investors’ connections and makes and makes future funding relatively easier. Bootstrapped companies cannot enjoy those benefits.
- Leaving money on the table: bootstrapped startups can miss great opportunities by restricting business potential to the available reinvestment amount
- Slow growth: bootstrapped startups can rarely achieve exponential growth by reinvesting retained earnings.
- Competition: in a competitive industry, bootstrapped startups can end up fighting for survival, and most of the time, funded rivals have an unfair advantage.
- Many stories of billion dollar companies suggest that the right way to bootstrapping is not one that goes forever, instead it is about building enough value before funding can take the company to the next level.