Inc.: Bootstrapping Is Wildly Different From Getting Funded. Here's What You Need to Know

First, a little context: I’ve now founded three startups (Ksplice–acquired by Oracle, Zulip–acquired by Dropbox, and Pilot–growing nicely!). Ksplice was bootstrapped. Zulip raised some angel money. Pilot is venture-funded.

The biggest difference for me personally, day-to-day, is in how you think about where you spend your time and money:

With a bootstrapped startup, you can’t spend money you haven’t earned, and your objective needs to be to get the business to breakeven before you run out of money. So if you have to choose between profitability and growth, you basically have to pick “profitability” until you’re at least breakeven–and each investment in “growth” (hiring people, buying things, etc.) makes it incrementally harder to get back to breakeven.

With a venture-backed startup, you have the luxury of being able to spend other people’s money–and so if you have to choose between profitability and growth, you generally pick growth. (In fact, you basically have to pick growth: showing strong growth is what investors are looking for, and is basically the only way you’re going to be able to raise even more money.)

The other large (potential) difference is around exit opportunities. If you own 100% of your bootstrapped startup and someone wants to buy it for $10M, congratulations, you just made $10M and you’re probably very happy. If you’ve raised a bunch of venture capital and only own 5% of your company, you simply can’t take an exit of that size–your investors won’t let you, and even if they did, all the money would go back to the investors anyway.

I don’t think there’s a right or wrong way to do it, to be clear. Different funding strategies are appropriate for different types of businesses, and many amazing businesses have been built with each approach. (So I don’t think venture-backed is “better” than bootstrapped–they’re just different.)

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