05. Bootstrapping vs Fundraising

05. Bootstrapping vs Fundraising

Estimated Time

  • Reading: ~6 minutes
  • Video: ~33 minutes
  • To Do: ~30 minutes


1. Self reflect on your core skill set and identify gaps where you will need a co-founder or team to supplement

2. Ask yourself, is your idea a lifestyle business or does it have venture scale?

Jason Calacanis |TWiST|Twitter|LinkedIn

Top Insights

  • The three pillars of building a great company
    • Product — Team — Customers
  • Building any combination of these three early can get the conversations started with investors

What is Bootstrapping?

  • The ability to create company off:
    • Sweat equity or
    • Revenue that you immediately started generating

What does it take to bootstrap a company?

  • Core skill requirements to bootstrap
    • UX designer, developer, product manager, and/or business and sales experience
    • Important to have some combination of these
      • Either you, or someone on the team
  • Individuals running accelerators typically think a team needs to have:
    • A developer on the team - someone to implement the plan
    • It is a red flag to investors if you can't get a developer on your team
  • Friends and family
    • This isn't really bootstrapping since you are raising a round
      • But it is often informal enough that we'll touch on it here
    • You always have the option to ask friends and family for some funding up front
      • Especially if that is the barrier to getting your startup off the ground
      • I know not everyone has a rich uncle to help fund their idea
      • But if you aren't willing to ask friends and family to invest in your idea...
      • How are you going to ask investors to put their money into your idea down the road?
    • Use the money to get into an accelerator or get your first customers
  • Keep your day job
    • If you don't want to raise funds from friends and family
    • Work on the weekends and nights
    • See if your boss will keep you on as a consultant a couple days a week
    • Remember what we talked about with IP
      • Make sure you are following your current employee agreement
  • Have your landing ready before you take off
    • You need a runway to understand how long you have to support yourself while pursuing your idea
    • Do you have the money you need to stay solvent while you try and get your startup off the ground?

You are not entitled to be a startup founder

  • The longer you bootstrap the less dilution you'll have on your cap table
    • Example: In a friends and family round, maybe you raise $250k at a $2.5M valuation
      • Meaning you gave away 10% of your company to get started
  • Imagine if you don't raise the $250k early
    • Instead, you build a functioning MVP by yourself
      • Or with a co-founder
    • You still have 100% of the company
  • Now, with a functioning MVP, you can raise a seed round for $500k at a $5M valuation
    • The 10% you give up now, got you two times the check size
  • Pegasus Company
    • A company that flies over funding rounds

Bootstrap then Raise Funds

  • You can always raise funds after bootstrapping
  • What are the signals to get investors excited about a bootstrap company?
    • A modest team of motivated individuals who are building a great product
    • If you have revenue
      • Do not be ashamed of your revenue!
        • Share it proudly!
      • Hiring team members off of revenue while bootstrapping is impressive
  • SaaS companies are a little easier than Marketplaces to bootstrap to this point
  • Build something!
  • What you build is greater than who or what you know!
  • Build an MVP first!
    • Then worry about a deck, pitch, networking, etc.
    • Don't try and get meetings until you have a couple users and a product to show
      • You are wasting your time trying to schedule meetings prior
      • Spend the time you'd spend at a coffee meeting making your product great!

Bootstrapping requires some skills

  • Use YouTube and online resources to supplement your current skillset
  • Fill in gaps by learning or ensure someone on your team has the necessary skills

Reasons to bootstrap and NOT take VC

  • You keep autonomy and scale at your own pace; less pressure
  • Raising money is tough — and time-consuming
  • You don't want to give up any ownership or equity.
    • Dilution is very real and not something to overlook.

What is Venture Capital (VC)?

  • VC is not a right - not everyone raises venture capital
    • It is a competition
    • Capital allocators have to find the big winners to keep their jobs
  • A very small percent of businesses in the world raise VC
  • VC is impatient capital
    • Looking for unrealistic, unnatural growth
    • Growth that is greater than ~20% month over month
      • Doubling every three or four months
  • Why does VC even exists?
    • Every 30-40 companies in Silicon Valley reaches this growth
    • When a companies hits this growth, the returns are huge
  • Founders are in a competition, in a fight to raise
    • It is not for everyone, and it is not fair - that is the reality

Venture capital is jet fuel

  • Do you even want venture capital?
  • If you put jet fuel on a skateboard, or a bike, or a car...
    • It will explode!
    • Venture capital is not meant for these forms of transportation
  • Jet fuel is for rocket ships - venture capital is for rocket ships
  • Ask yourself, is your idea a rocket ship?
    • Is you business on track for unrealistic, unnatural growth?

What types of business should seek venture capital?

  • In general, fundraising is a path for very few startups and companies
  • Most companies in the world are building a "lifestyle business"
    • Which is not a negative term!
    • A lifestyle business means you are probably living an incredible lifestyle
      • Bringing in millions of dollar of revenue a year
      • While working lighter hours than a venture-backed founder
    • Lifestyle businesses are not venture scale
      • Meaning they won't return 100-1000x on an investment
    • It is rare they are going to reach $100M+ in revenue
    • Do NOT take "lifestyle business" as an insult
      • Just know you won't raise venture capital funds

Does your company have venture scale capability?

  • Here's how you can find out if seeking VC is the right fit?
  • It's important to ask yourself if you need venture capital backing
    • Be honest with yourself here
  • In other words: is this a venture scale business?
    • What is your path to $100M a year in revenue?
      • $100M a year is a big number
      • That is ~$275k a day ... ~$10k+ an hour
      • What is your plan to bring that in?
    • Will large amounts of capital justify giving up 50, 60, 70%+ in ownership of your company?
  • Is your company a software or marketplace business?
    • We will explore this more in Building: Business
    • Why can software can grow so fast?
      • There is no cost of goods
      • You write the software once and sell it as many times as you can
    • Why do marketplaces scale so nicely?
      • As the frequency of transactions goes up
      • The company take rate increases right along with it
  • For a company like Uber raising venture capital was a no brainer.
    • Large amounts of capital helped them build a moat to fend off competitors like Lyft
    • This was easily worth Travis and Garrett Camp giving up what is now billions of dollars of equity.
  • High margins & high scale
    • SaaS, Cloud Computing, and Consumer Subscriptions are businesses that also scale gracefully
    • Selling hardware is not a high margin or high scale operation
    • Services or consultants have a tight margin (not high)
  • Something else to keep in mind
    • Building to sell (or be acquired) is a dangerous idea
    • Trying to build a business just for the sale is a terrible idea

Outlier Success

  • Venture capitalists only get excited about the high growth companies
  • Chances of this kind of success is rare
  • Side note: A venture capital career
    • Venture capital firms are typically defined by 1-2 successes (outliers) in each fund
    • Venture capitalist often participate in ~5 funds in a career
      • This means they are only around for ~10 hits from those funds
      • Of the 10 outliers 1 or 2 will be the majority of their returns
      • The top 10 will be 95% of their career returns
      • Each partner will work on 1 (maybe 2) of those in their career
      • This means that a career in venture capital can be made with 1 successful outlier in a decade
    • They want to know what is going to be the career defining investment
    • Is your company the one that will define them?
    • Hopefully this side note helps you understand how venture capitalists think about investing

Bootstrapping vs fundraising comes down to

  • How far can you get while bootstrapping?
    • How far can you push out dilution?
    • Can you skip a round of fund raising?
  • Do you have the skills required to successfully start a business?
  • Is your idea, your product, your company venture scale?
  • How much control and equity are you willing to give up?
  • What is your clear path to $100M?
  • How will your idea return 100x - 1000x an investors money?
  • Lifestyle businesses can grow into venture scale - ask Calm
  • The important thing is to build a great product, delight the customers you have, and grow your team
  • The three pillars of building great companies are constant
    • Regardless of if it is bootstrapped or funded
    • Product — Team — Customers
  • This is the flywheel to success!


1. Self reflect on your core skill set and identify gaps where you will need a co-founder or team to supplement

2. Ask yourself, is your idea a lifestyle business or does it have venture scale?

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