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Home > Creating Success > Financing

Financing

It seems that most people believe the only way to fund a start-up is to obtain venture capital. That was never true in the past any more than it is today. Of course, some opportunities require far too much capital for self-funding, but certainly not all. I was fortunate to recognize that bootstrapping my company would give me something that I found very important — greater control.

When an outsider makes a large investment in a business, he or she typically wants a say in the composition of the board, business alliances and combinations, future financing arrangements, and of course, the managers and management of the company. Not only that, the investor typically wants his or her money back as fast as possible.

There is also an inherent disadvantage of raising money — it can take an unbelievable amount of time. Although it never seemed like one has enough time, the freedom from raising money and tending to investors will give you much more time to spend on strategic and operational decisions than one would have had otherwise.

Bootstrapping a start-up has additional advantages as well. First, without outside investors, the entrepreneur gets to keep a much bigger piece of the pie.

Another advantage of spending one's own money is that it naturally encourages financial discipline. By definition, a bootstrap must have a profit-making business model, and profits provide the freedom for a company to invest in new ideas as well as the ability to survive a strategic mistake or market downturn.

Sometimes bootstrapping is the only possible business model for a company. As colleges increase the number of classes about entrepreneurship, more and more students desire to start a company the day they graduate. In most cases these budding entrepreneurs are too young or inexperienced to obtain venture capital — a bootstrap often becomes the only alternative.

Perhaps the most subtle advantage of a bootstrap comes from the necessity of doing things yourself. You will find areas where you are better than anyone you could hire, or at the very least you will be a better manager of the area when you ultimately delegate it or fulfill it outside your company. I experienced this, and I became very resourceful when I knew I had limited resources.

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