Archive for July 14, 2011

It’s Not Bootstrapped vs. VC

Written by Sean Murphy. Posted in 2 Open for Business Stage, 5 Scaling Up Stage

From Hillel Cooperman‘s  “Bootstrapped vs. VC Funded–Who is Likely to Make the Most Money?

I bet that founders of bootstraps end up earning more money over the long haul out of their businesses than founders of venture-backed firms. The rare IPO may spike the numbers in the other direction, but I’d love to see the reality.

The question is, at a startup’s formation, is it better to focus on VC or revenue as the way to fund the business. That’s the first choice you get to make.

I think the odds favor bootstrapping since something like 1 in 200 firms are funded that seek funding without revenue, while somewhere between ten and thirty percent survive five years.

The next question is: if  you have successfully bootstrapped the firm to a reasonable plateau that’s sustainable, do you spend time seeking outside investment or continue to grow based on revenue. Here there are a number of factors that make it a much more case by case decision:

  • competitive landscape
  • addressable market size
  • use of funds (do you have a reliable model for generating demand)
  • do the founders have the desire to grow the business to be able offer investors an acceptable return

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