It seems that more and more early-stage start-up founders and business owners are looking for other people’s money to fund their businesses. I began to question this sort of twisted wisdom 5 years ago.
I’ve come to believe there’s a better, more empowering way. Thanks to that teaching telling people that speed is everything in start-ups. Bullsh*t. It’s a philosophy of revenue generation that matters. I’m convinced it’s the key to unlocking a startup’s true potential.
Everybody is looking for other people’s money
I understand. The feeling of telling everybody that you are backed by investors is tempting. I was there before, yes in that situation. So yeah, I know. The promise of a significant cash injection to supercharge growth, bypass the initial grind, and concentrate on the grand vision is incredibly tempting. However, my observations have shown me that investor money often comes with hefty strings attached. It’s not free money, no.
First, your balls will be in their control. Investors play a crucial role in providing funding, but their expectations can sometimes conflict with your vision for the business. Suddenly, your decisions have to be filtered through others’ expectations, potentially diluting my vision and hindering autonomy. This delicate balance requires careful navigation to ensure that the partnership benefits both parties.
Another challenge I’ve faced before is the pressure to hyper-grow. Investors, especially venture capitalists, are hungry for explosive returns, which can lead to an unhealthy pressure to scale at breakneck speed. This rush to grow can result in reckless decisions, bloated spending, and neglect of the business’s foundations in favor of chasing vanity metrics. It’s a dangerous trap to fall into, as it can undermine the long-term health and sustainability of the company.
The fundraising treadmill is a massive time sink. Countless pitch meetings, mountains of due diligence, and seemingly endless negotiations can consume months of my time, stealing my focus from the heart of it all: developing a product or service that customers truly adore. This constant chase for funding can become a distraction, diverting my attention from the core mission of the business.
Are you truly up for all these? Just sit there quietly and think about these first.
Your priorities will change
Perhaps the most disturbing aspect I’ve witnessed is how the focus on fundraising can warp priorities. This is the funny part. Too many founders prioritise the pitch deck over a viable product, believing that the mere act of securing funding will somehow validate their business – even if there’s little substance to justify the investment. This dangerous reliance on external validation is a recipe for failure.
Stop dreaming and start working
I firmly believe there’s a more empowering path—bootstrapping with entry-level products or services. This means focusing on generating revenue from day one, even if it’s just a small stream at first. Yes, it might feel slower initially, but it offers a host of advantages that far outweigh the flash of a big funding round.
Bootstrapping a business instills a sense of resourcefulness. It instills creativity too. Without extravagant funding, I became acutely aware of every dollar spent. Aside from helping me to focus on efficiency builds a lean and resilient foundation that benefits me in the long run, it helps me to refine the business model making it even stronger than before.
One of the greatest advantages of growing a business through self-funding is the control it provides. you remain in the driver’s seat, charting courses and making decisions aligned with your mission. You’re not beholden to the whims of external investors. This level of freedom is often more valuable than any amount of funding. You will thank me later when it comes to this.
Here’s what will happen if you fail and your investor money runs out
The narrative of the startup world often glamourises securing investor funding. It’s seen as a golden ticket, a fast lane to explosive growth. However, the reality can be a lot bleaker, especially when that funding runs out and the dream faces a harsh collision with reality.
A cash crunch is more than just a lack of funds; it’s a downward spiral. It usually coincides with missed growth targets or a failure to achieve key product milestones. This erodes investor confidence, making it harder to secure additional funding. It becomes a vicious cycle, with dwindling resources making it even more difficult to achieve the success needed to attract new investment.
In the face of a failing startup, uncertainty breeds fear. Top talent starts looking for more stable ground, creating a knowledge drain that further hampers the company’s ability to innovate and recover. This employee exodus not only depletes the company’s human capital but also erodes its morale.
However, the consequences of a failing startup go beyond the immediate financial and operational challenges. Founders may face legal nightmares depending on the terms of their investment agreement. Failure to meet investor expectations could trigger clauses demanding repayment of invested funds, personal asset forfeiture, or even lawsuits. Navigating these legal battles can be draining, both financially and emotionally.
The reputational fallout from a failed startup can also be significant. News travels fast in the tight-knit entrepreneurial ecosystem, and word of a failed venture can spread quickly. This can make it incredibly difficult to secure funding or even land jobs in the future. Rebuilding trust and reputation takes time and significant effort.
Do you need to repay the money?
Whether or not you are obligated to return investors’ money after a failure depends on several factors.
If they opted for equity, you’re, in a way, safe. Equity investors primarily assume the risk of loss rather than expecting repayment. However, contracts often include complex clauses that provide some investor protection. On the other hand, debt financing typically requires repayment, even if the venture fails. It means, yes, you still need to repay.
But if they invested in your business in return for something related to personal guarantees involved then you’re in deep sh*t. Investors might insist that you, who have signed some personal guarantees before, repay and ensure the repayment happens. In the unfortunate event of business failure, as a start-up founder, you could be held personally liable, potentially putting your own assets at risk. This aspect highlights the importance of carefully considering the terms of any investment agreements and the potential consequences before committing.
Bootstrapping doesn’t equal the hard way, no
Bootstrapping isn’t simply about surviving the scrappy early days. It’s about laying the groundwork for lasting success. As you reinvest profits into your business, you create organic, self-sustaining growth. Ironically, this track record of revenue generation makes your company incredibly attractive to investors, should you decide to pursue funding later down the line.
Securing investor money might be the most talked-about path for startups seeking capital, but it’s far from the only option. Savvy founders know there’s a diverse range of resources that can fuel a business in those critical early stages. There are a few other ways you can consider.
Crowdfunding
The concept of crowdfunding involves raising small amounts of money from a large number of individuals, typically through online platforms. Instead of pitching to a handful of investors, you’re pitching directly to potential customers and supporters passionate about your idea. There are several types of crowdfunding:
Rewards-based Crowdfunding. This model is ideal for startups with a physical product. Campaign backers receive tangible rewards, such as the product itself, in exchange for their contributions. Rewards-based crowdfunding is a great way to generate excitement and buzz around your product launch and to raise funds to cover production costs. Some popular rewards-based crowdfunding platforms include Kickstarter and Indiegogo.
Donation-based Crowdfunding. This model works best for charitable causes or projects with a strong social impact aspect. Donation-based crowdfunding is a way to raise funds for a cause that you’re passionate about and to involve the community in your project. With donation-based crowdfunding, backers typically do not receive any tangible rewards, but they may receive recognition for their contribution or have their name listed on the project’s website. Some popular donation-based crowdfunding platforms include GoFundMe and CrowdRise.
Equity Crowdfunding. In this model, backers become micro-investors, receiving shares in your company. Equity crowdfunding is more regulated than rewards-based and donation-based crowdfunding, and it’s typically meant for slightly more established startups. With equity crowdfunding, backers have the potential to profit if the company is successful, but they also risk losing their investment if the company fails. Some popular equity crowdfunding platforms include Wefunder and SeedInvest.
Pre-Orders
Pre-orders allow you to sell your product or service before it’s fully launched. Customers pay upfront, and you use those funds to finance production and delivery. This strategy is a great way to test market demand while generating much-needed capital. For pre-orders to be successful, you need a compelling offering that solves a real problem and has a clear value proposition. Additionally, build trust with potential customers through a well-designed pre-order campaign, clear communication, and setting realistic expectations for delivery timelines.
I don’t know whether you know this or not but companies like Tesla, with their Model 3, generated significant hype and revenue through pre-orders. Many independent board game creators also successfully use platforms like Kickstarter to fund production through pre-orders.
Choosing the right strategy
Both crowdfunding and pre-orders offer distinct advantages to startups, including market validation, building a loyal customer base from the very start, and the ability to maintain control over your company’s direction.
However, each approach also has potential drawbacks. Crowdfunding requires a lot of time and effort for campaign creation and backer engagement, and success is never guaranteed. With pre-orders, you need to be very confident in your ability to deliver the product on time. Delays or issues can severely damage your brand reputation.
The best approach will depend on your specific business needs and your product. Crowdfunding might be a better fit if you have a highly innovative concept that benefits from the buzz and community aspect. Pre-orders are ideal if you have a more clearly defined product roadmap and can confidently set production and delivery expectations.
It’s important to acknowledge that bootstrapping isn’t a magic solution. It demands discipline, resourcefulness, and the ability to wear multiple hats. Not every startup is well-suited to quickly building and selling an entry-level product or service.
However, if you value freedom, want to learn from direct customer feedback, and desire a lean, self-reliant business model, this approach is worth serious consideration. Funding can sometimes be like rocket fuel – powerful, but potentially explosive if not handled with care. Bootstrapping teaches you how to launch, navigate, and truly pilot your own ship before you ever consider strapping on those boosters.
So, what now?
Just be careful. Be in the know what you truly wish for. That’s my personal advice to you. The ever-toxic seduction of investor funding can easily blur the lines between chasing dreams and building a sustainable business. I believe true power lies in generating your own revenue, and it is as simple as that. It is by far more accommodating if your journey somehow fails halfway than using money from investors. Of course, sometimes investor funding is the right tool for the job. But it’s essential to approach it with clear eyes, fully aware of the potential tradeoffs. Too often, I’ve seen the focus on funding distort priorities and lead to catastrophic outcomes.
