Bootstrap or Raise VC Money? 9 Questions to Ask
April 25, 2022

Bootstrap or Raise VC Money? 9 Questions to Ask

by Brian de Haaff

“How quickly can we set money on fire?” I was reading an article the other day about the downfall of an overfunded startup and was struck by this comment by a former employee. It encapsulates so much of what can go wrong when a business loses sight of its purpose and cloaks itself in hype. It is unfortunate how many get lost as collateral damage in the process. Yet I do not think most founders aspire for their companies to die an expensive death.

Most entrepreneurs are energized by the idea of investing their time into something they love — realizing a vision that is uniquely their own.

There are many paths to building a business. I have long been a proudly outspoken advocate for bootstrapping. It is how we scaled Aha! to $100 million in ARR in eight years. Recently we launched the Bootstrap Movement, which outlines the ethos and advantages of self-funding a business. More than 100 people have signed the bootstrapper’s pledge and there are 25 entirely bootstrapped companies in our directory so far.

I think there is a groundswell of folks who want to return to a grounded approach to building that puts actual — not theoretical — value as the metric of success.

This is why I am surprised to hear from founders who still think they must orient their business around venture capital from the start. Raising money is not a logical first step for a startup. Rather than rushing to find someone to sign their first term sheet, founders should find someone who wants to buy the product they are building. Clarity of vision, customers, and committed colleagues fuel a lasting business. If you are unsure, I suggest taking time to deeply consider bootstrapping vs. venture funding — starting with the following nine questions:

What are you building?

There are practical financial realities based on the product you are developing. I think most SaaS companies can bootstrap. Software does not take a lot of money to build and generally has reasonable associated costs. But say you are in biotech, aerospace hardware, infrastructure — you will need a lot of money upfront to bring your idea to fruition. No matter what your product is, you can still work hard to limit investment and benefit from the principles that bootstrappers follow.

What is the market potential?

The market you are entering is a major factor in choosing to bootstrap or raise funds. The total addressable market needs to be easily understood to gain investor interest. And if it is a quite established space with many well-known offerings, you may need to pursue high-cost go-to-market efforts to stand out and think VC funding is necessary to do so. But remember that small markets become big markets over time based on variables you can control and many trends that you cannot — so this can be a red herring.

How passionate are you?

Passion counts twofold. First, you need to have a deep interest in the problem you are solving. And second, you need to recruit people early on based on your vision and very early progress. This is true whether you bootstrap or raise funds. Just know that you have a greater chance of being replaced over time if you accept investment dollars — if your passion truly fuels you, this can be devastating.

How much experience do you have?

Inexperienced founders may think a venture firm can help fill in skill gaps through advisors. But I think if you are a realistic optimist and focused on learning, it is possible to gain the knowledge needed as you go — without a cadre of outside voices steering you. Mentorship and networking can be overrated if you trust yourself and a few others. Besides, it is worth considering the motivation of venture-provided advisors. They are incentivized to realize the highest possible return on their investment above all else. You are a valuable tool to help them reach their goal.

What is your horizon?

A year, a decade, a lifetime. Time is not guaranteed but you likely have a sense of how long you are looking out. And you also have a sense of what you want to achieve in the duration. There are very few billion-dollar companies and many more in the $10- to $100-million space. A profitable and sustainable company in that range is not as interesting to an investment firm that needs larger and larger deals.

How resourceful can you be?

The right co-founder is an essential asset. From my experience, it is particularly helpful to have a trusted partner who can bring out your best traits and offer skills you lack. But solo founders may be swayed by access to specialized resources that a VC firm could support. For example, many firms offer marketing, PR, and recruiting services to companies in their portfolio. Personally I think that hiring and messaging are critical areas for founders — no one knows what makes your company unique more deeply than you.

How much money do you have now?

You need some money (or the ability to live without it). Most early-stage startups should have at least a year or two of runway. If you are confident and see early signs of progress, you may want to take a small loan — but reducing cash burn is your best move. If you do not think you have enough to keep going, remember that raising money has an associated time cost that will surprise many first-time founders. Due diligence often drags on for months and sometimes years.

What is the time to revenue?

Bootstrapped companies rely on the company’s profit — actual cash flow — to scale and grow. The faster you get to revenue the faster you can invest back in the business. Venture-backed companies are able to hire and expand without much concern for revenue, just valuation. Put profitability first and opportunities to expand organically usually emerge as a result.

Who do you want to answer to?

You answer only to your customers, colleagues, and community. Founders who accept outside funding answer to outside voices. Every venture capitalist will say that they are dedicated to your vision, but this is not an altruistic profession. It is about money. Their goal is to capitalize on the investment in your business at the highest possible return.

Bootstrapping fundamentally changes how you think. It is a mindset that sharpens your decisions, drives value, and forces focus.

Now, I do not think that bootstrapping is necessarily forever. Your ambitions and needs may change over time. There are plenty of companies that chose to accept investment money once they were well-established and had specific goals that they felt required a considerable infusion of cash. Look at 1Password, Shopify, and SurveyMonkey. And even MailChimp ultimately sold the business to see its impact grow. The difference is that these founders built something of value long before they were talking about valuation. They gained resilience, enjoyed creative space to pivot, and were able to take a long-range view.

If your product is unique, the growth potential is high, and you are passionate about the journey ahead, then the smart move is to invest your time in building a sustainable business — not pitching VC firms.

Bootstrapping is for everyone. Join us in the Bootstrap Movement.

Brian de Haaff

Brian seeks business and wilderness adventure. He is the co-founder and CEO of Aha! — the world’s #1 product development software — and the author of the bestseller Lovability. Brian writes and speaks about product and company growth and the journey of pursuing a meaningful life.

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