Should you bootstrap or raise fun for building a business?
“Investors prefer investing in bootstrapped entrepreneurs because you have proven that you are capable of doing things on your own dime, which gives us confidence that you will be able to make good use of our funds”.-Dr. Aniruddha Malapani
The notion that bootstrapped companies are preferred over-funded companies at the beginning is to a great extent paradoxical.
If a startup is bootstrapped for long, it raises doubts in the mind of investors that something must be wrong, otherwise why nobody has invested?
In India, bootstrapping is a requirement not a choice for the majority of the startups.
Investors love cash flow and growth. Founders who have put their money into the business and multiplied it draws more attention. If a company is bootstrapped and has no run-rate, looking desperate to raise to survive, fails to do so. Cash is the king. Borrow, bootstrap, raise, do whatever to generate cash.
Obviously, a cash-generating company, where only the founder’s money is involved is much more attractive to any investor than say a company that is generating cash flow with someone else’s money.
It proves the founder’s passion, as well as the team’s execution. A good growth to go with it is the icing on the cake. Finding investors is tough, but finding good businesses are much tougher. Getting a business with cash flow, founder’s money, chemistry with proven passion and possible growth is the perfect dish an investor loves to see in plate 🙂
Therefore “Bootstrap till a good cash flow and growth is achieved” may be a winning mantra!