Fundraising Vs Bootstrapping: Pros and Cons

One of the most prevalent causes for a startup’s failure is a lack of capital. On the other hand, raising funds can help to boost a startup’s growth.

Money is the lifeblood of every company. A fuel called money is required for the lengthy, complicated, yet fascinating journey from concept to the revenue-generating firm. As a result, entrepreneurs question themselves, “How can I fund my startup?” at practically every step of their business.

When you need money now is mainly determined by the kind and style of your firm. However, after you’ve discovered the necessity for fundraising, here are some of the numerous financing options open to you.

To assist you in acquiring funds for your firm here is a complete list of pros and cons for fundraising and bootstrapping startup funding choices.

1. Fundraising

The process of collecting money as beneficence for a cause from individuals and corporations is known as fundraising. A fundraiser is a person who organizes and manages funds from others. It is also a process of appealing financial support and is essential for most nonprofits to bring in revenue for their organization’s mission.

Also, for the budget of any business, it gives support. Budgets are crucial because they enable companies to have honest discussions. They are learning and accountability tools, but only if employees and boards are comfortable with them, if not confidential with them.

Fundraising initially was raising funds for nonprofit groups, but fundraising has developed significantly and is now used to support various important causes.

Traditional fundraising takes place in person, whereas modern-day crowdfunding takes place online. Fundraising initially raises funds for nonprofit groups, but fundraising has developed significantly and is now used to support various important causes.
We can do fundraising with the following two types:

a. Angel Investor

Angel Investors are seasoned business people who hunger to invest in early startups. For example, anyone thinking about pitching to an investor must consider whether investors are angel investors or venture capitalists and cater to them accordingly. Angel investors constantly invest their own money, so they think it more personally. Angel investment is often a seed round intended to get a firm to a point.

When pitching to angel investors, you can expect a higher degree of personal inquiry during the due diligence process since they are investing in you as much as they are in your concept. Venture capital is more about the firm than it is about the investor.

Finding Angel Investors is not a big deal, but getting their investment is hard work. Most investor groups have a similar organized procedure for identifying businesses worthy of their investment, and it’s essential to have a broad understanding of how that process works so you can prepare and have a reasonable concept of what to anticipate.

b. Venture Capitalists

The objective of a startup is to grow the business and its value as fast as possible to realize the most significant ROI possible while exiting. So, All the profits get reinvested rather than sharing dividends. Thus, shareholders only get paid when the company is sold, or IPO launches.

The main criteria for getting investment from VC’s are

  • Team 
  • Opportunity
  • Business model

Venture capital is a type of finance business offered to companies with strong development potential. In return for shares in the companies they invest in, venture capital firms or funds invest in these startups.

The startups that venture capitalists seek are usually based on innovative technology, and usually, from the high technology industries ensure; Capitalists do generally not fund startups from the onset.

Instead, they seek to target firms at the stage where they are looking to commercialize their idea.

PROs And CONs Of Fundraising

Here is a list of the pros and cons of fundraising:

PROs

  • Advice and strategy
  • Trusted Service provider relationship or we can say access to network
  • Hiring employees becomes more easy
  • Further Access to capital
  • Internationalize of startup

CONs

  • Lose opportunity for a small exit which could be personally lucrative.
  • Reporting to VC’s could be more repeating
  • Bounding in one work
  • Sales might be limited based on payment preferences
  • Raised money can be used for unnecessary purchases

2. Bootstrapping

Bootstrapping is the process of creating a company from the bottom up without the need for outside funds or investment. It’s a method of funding small businesses that involve the owner purchasing and using resources at their own expense, rather than sharing equity or borrowing large sums of money from banks.

While only risking his own money, the entrepreneur gains a wealth of experience. It means he will not be obligated to repay loans or other borrowed funds if the business fails. The business owner will save money and attract investors if the project is successful. As a result, the company will reach a new height.

With bootstrapping, the entrepreneur can maintain control over his decisions as venture capitalists do not get in the way of the decision-making process. Bootstrapping also means that less money has to be borrowed and reduced interest costs.

Usually, Bootstrapping is successful when costs are low and investments are high. It is only with careful attention to financial resources that this method can work. This means that bootstrapped companies usually avoid investing in things that are not necessary and find ways to get by with less.

PROs And CONs Of Bootstrapping

Here is a list of the pros and cons of bootstrapping:

PROs

  • Founder gives up less equity.
  • If you do raise money, it will be at a much higher valuation if you are cash positive
  • You can do what you want without asking permission
  • You control your growth rate and exit strategy
  • Viable as long-term stable career and cash source rather than risking
  • For consumer products, you can be as scrappy as you want and become profitable with just a few quick sales

CONs

  • Possible crash and burn from cash shortage due to undercapitalization
  • Fast growth, success, and exit are more likely.
  • It gets lonely without active investors.
  • Rarely is their extra money for capital projects, R&D, branding, or expansions.
  • People will not take you as seriously; harder to recruit talent.
  • Better-financed competitors may beat you to new markets, then beat you in your own
  • If the company is not set up for outside funding, it is hard to get and retool to be angel/venture fundable.

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