Will you Bootstrap or seek VC funding?💰
They are two different paths; you have to decide which you will choose early.
Most founders think of VC funding as an option early in their process.
But not all startups will or can receive VC funding.
Many of you reading are NOT strangers to an investor's rejection email.
It is painful and can be soul crushing.
BUT
Just because VCs reject certain startups does not make them bad businesses.
It is known that VCs are sometimes terrible at picking good businesses.
With all that’s happened with FTX this week, i think this much is clear
⛔ VC funding does NOT necessarily make a good business
As a founder, it is tempting to look to VCs for validation
There's the euphoria that a VC has chosen to invest
But you have to remember that it is customers who make successful businesses
Not VCs
And after the funding.
Immediately comes the expectation to deliver
The pressure to perform
The bar is higher
With that in mind, this is a reminder to ask yourself.
“Who are you building for”
💸 #TeamVC Funding
Don’t get me wrong; there are immense benefits to raising VCs.
The extra capital can help you build and hire quickly, and compete aggressively
Brand awareness helps you build credibility with customers and quality talent
Raising from VC is a signal that credible partners back you
However, VC is not the only path to success and should never be considered as such.
Here are a few things to consider as you consider VC funding:
🚀 VCs are looking for outliers.
You could build successful business that gets acquired for $20m after 5 years.
As a founder who owns 80% of this business, that is an INCREDIBLE success.
For VCs, this is “failure.”
You heard that right. VCs are often hunting for $bn outcomes.
They are looking for startups that show outsized success. Ask yourself (honestly):
“ Is your startup capable of generating such returns in its most ambitious form?”
🚪 VCs are looking for an exit.
VCs are managers of capital on behalf of other entities and persons
They are looking to get 5-100+x their investment back in 5-10 years down the line
If you are building a business in Africa that doesn’t have a path to exit
Say via a substantial acquisition or an IPO listing to hit such return multiples
You are unlikely to attract VC capital
One way to test if your startup can give the exits VCs require is to
Ask yourself (honestly):
“Are there similar business models in other markets who have reached $bn status or have exited via the public markets”
📈 VCs are looking for founders who ambitious and can scale
VCs are looking for founders who have grand ambitions
Ambitions and the ability to grow alongside their company
Founders who know firsthand what an excellent fast growth company looks like
VCs often optimize for founders who can transition from building a product
To build teams and systems that make incredible products that scale
It essentially means the founder has to grow aggressively
🥧 VCs are looking for founders who are willing to share ownership
If you need to own 100% of your business, VC is NOT for you.
Many founders don’t know this, but by Series A/B, the board can fire a founder
VCs are looking for shared ownership and sometimes decision making
VCs who have invested significant amounts of money will ask for a board seat
With that comes the ability to make decisions for the company
Are you ready to manage the relationship with investors who have expectations?
🟢 Other things to consider:
When you raise VC funding, it's a bit like a drug. It’s hard to stop.
As a founder, you often need to continue to fund your growth
Remember, your ambitions are large.
As investors invest, they are looking for exit opportunities as you raise
You and your investors (co-owners) are incentivised to keep growing and expanding.
You also want to give early employees some return on their investment
It is tough to get off this train.
🪙 #TeamBootstraping
When you choose to bootstrap, it is a HARD MODE.
You will have to be creative and prudent, which can be less “sexy.”
EVERY SINGLE penny counts!
You will have to make difficult decisions on what's most important
You might not be able to move as fast or compete as aggressively
You might struggle to attract quality talent compared with funded competitors
However it can be good in the sense that 👇
You retain more ownership and control in the long term
You can choose to grow at your own pace - no pressure from investors
You can take unconventional decisions about your own company
When there is an exit, you enjoy a large % of the financial upside
So, as a founder, you must decide:
Are you optimising for VC funding considering all above?
Or will you bootstrap?
Hint: There is no one right answer 😊
Both are legitimate paths. Both are hard (in different ways)
But you have to choose.
And if the choice has been made for you.
Make do with what you have, and make the best of it.
Tell me, what team are you? #Bootstrap or #VC?
Till next time.
Maria