For many entrepreneurs, it’s not always clear which funding model best suits your business goals. Should you go with a VC, an angel, an accelerator, crowdfunding or all of the above? Should you simply fund your company on your own? Each route, whether bootstrapping or tapping into outside investors, has its pros and cons.
As CEO of mobile ad-tech startup ClickMob – a startup that’s been completely bootstrapped and profitable since the third month of operations – I’ve witnessed up close and personal the triumphs and challenges of going it alone.
Fast forward to today, our company has grown 900 percent in just two years, and we were recently named by Forbes as one of America’s 30 Most Promising Companies. In hindsight, we chose the right path. But bootstrapping is not for everyone.
Here are the top four benefits and challenges I’ve faced as CEO managing a self-funded ad-tech startup:
1. ANSWERING TO YOURSELF
Aside from forcing you to give up precious equity, accelerators, VCs, and angels each have their own motivations, goals and particular interests when they choose to invest in a startup.
Those interests are not necessarily the same as yours. And when they clash, it can be particularly challenging trying to navigate these outside pressures.
By self-funding, you answer only to yourself. This provides a wonderful “foundation of freedom,” allowing your leadership to set your agenda autonomously, choosing everything from your direction to when to be acquired… to if you want to be acquired at all.
Since outside influences push the company in various directions, limiting them allows you to be hyper-focused on whatever it is your startup is doing best — from producing flagship products to bolstering core competencies of the business.
If necessity is the mother of invention, when your own money is on the line, necessity suddenly becomes the mother of all mothers, forcing you to invent, reinvent and innovate (because you often have no other choice.)
This is related to the idea that you’ll treat something you own with more care than if it ultimately belongs to someone else. Owning 100 percent of your business makes you that much more likely to obsess over the details.
If the startup is your baby and you’re driving the car, you’ll think of better ways than speeding to get where you’re going quickly.
If you launch your startup with your own funds, generating revenue early is often essential to keeping your head above water. This means a successful profit plan must be operational early, which can lead to growth models that weren’t necessarily part of your original plan. This may just be detrimental to future growth down the road.
2. ORGANIC DEVELOPMENT
Without a large amount of cash on hand, the company might not be able to develop key components as quickly as desired.
A certain amount of revenue will be required for expanded R&D, hiring and marketing, and more time and planning will be needed to achieve those goals. Some growth milestones may take longer to reach, and targets might have to pushed further down the line.
3. CONNECTIONS, NETWORKING & GOING TO MARKET
Sometimes it’s not what you know, but who you know. VCs and well-connected angels can put your startup in the room with the right people, bolstering valuable partnerships, opening up crucial markets and giving you increased visibility.
Lacking this, you’re on your own, in many, many crucial ways.
Not having outside investors may hurt your company’s credibility in the beginning. Who are these new kids on the block and why do they think their product will be better than others in the same space?
Backing by well-respected, credible investors gives many potential customers the confidence to buy in. Self-funding may also highlight a company’s lack of resources and business experience.
In short, in an industry where breathing room can be a necessity, outside funding may just be the breath of fresh air you were looking for. On the other hand, bootstrapping may just be the kick in the pants your startup needs.