Not too long ago, a friend of mine told me about a young entrepreneur who was spending a lot of time looking for venture capital and start-up money for an app he had developed. I suggested that the entrepreneur should forget the financing and use his own money or borrow that of his friends or family. In the businesses I’ve created, I’ve always bootstrapped it, and my suggestion, if you’re an entrepreneur, is that you think about doing the same thing.
Let’s start with the most obvious reason not to waste your time looking for venture capital money.
How about the reality that 99 percent of startups for VC money won’t get it?
When I was developing my businesses, a few people suggested I look into venture capital money, but I never really paid it much thought because I wasn’t willing to go through the exercise, which would have been a waste of my time. I much preferred to bootstrap it and get started on making money than trying to be the 1 percent or less that gets financing. I calculated my odds and having a less than 1 percent chance of success was not worth it and would waste valuable time.
I wasn’t willing to give away any equity stake in my businesses.
I knew that I would be successful in my companies. If you’re an entrepreneur and you think otherwise or doubt yourself, do yourself a favor and get a job. But, let’s assume for a moment that I had instead decided to go down the VC route. Provided I got funded, it would have required that I give up a stake, perhaps even a controlling interest, in my companies. I don’t know about you, but my ideas and solutions are mine, and I don’t want to give away that decision making ability to anyone, even if it meant an infusion of millions into my businesses.
Bootstrapping taught me to be creative and innovative.
I’ve gone through the experience of lean days, especially as we started to take off, where I had to meet overhead costs and payroll, and there was not much margin for error on the revenue side. There were times when I went whole stretches not drawing any salary whatsoever. In fact, one of my fun moments when I get a business to a sufficient level as the CEO is to joke that the chief executive can finally get paid. One of the biggest lessons in bootstrapping is that if you’re committed to succeeding in your business at all costs, then the pressure to make money is going to push you–hard–to figure out a way to monetize your idea well, and prioritize how you use the money and resources that you have on hand.
I like developing a start-up and growing to scale on my timeline
If you get venture capital (again, not likely), you’re going to be pushed to expand to scale quickly. I happen to be one of those entrepreneurs that enjoy growing and developing a business from nothing to something big. I like learning all of the ins and outs of the work I do. More importantly, as an entrepreneur, bootstrapping allowed me to test out ideas and pilot programs to see what worked and what didn’t. When you get VC money, you get little room for experimentation because the pressure is on to get the money and profit into the investor’s pockets and that means having to scale quickly.
Venture capital firms are not all they’re cracked up to be.
Years ago when I was thinking about investors–for about a minute–I came across an article by the Harvard Business Review, and it talked about the myths of venture capital firms. A few of the realities were that entrepreneurs had to do their due diligence because not all VC firms were created equal. A selling point of VC’s is that they can provide the mentorship, expertise, and advice they might need to take off. Not true. Another critical myth was that companies that had VC money were going to have spectacular financial returns. That was also not true, and in fact, VC companies underperformed the market.
It pains me when I hear young entrepreneurs thinking about looking for venture capital money. Please, if you’re reading this and this is you, my advice to you is simple. Don’t waste your time. Your time and energy are better spent diving into your business and figuring out the path and solutions to bring what’s in your mind to the market.
Article by Wayne Elsey