Why bootstrapping your business can beat investment 

With 2021 being a record year for European VC investment, it's become standard practice for start-up founders to raise external finance early on in their journey.

Why bootstrapping your business can beat investment 

With 2021 being a record year for European VC investment, it’s become standard practice for start-up founders to raise external finance early on in their journey. But the power of bootstrapping should not be overlooked. 

Rather than jumping on the investment bandwagon, biding your time before taking external funding and bootstrapping instead can be just as beneficial, and in some cases, more financially rewarding. Bootstrapping my own business, Laundryheap, meant that I focused on building a sustainable business model, rather than chasing growth metrics at any cost. This decision enabled me to scale up our operations in a future-proofed way and lay the foundations for long-term success as we entered into international markets. Only when we were sure that we had the model right, did we decide to raise strategic investment. Here are four reasons why bootstrapping can trump VC-backing:

Your business is owned by you

You risk diluting ownership of your business if you take it through multiple rounds of fundraising. Holding off external investment until the time is right will encourage you to only pay for what your business needs, helping you to avoid unnecessary expenses. You’ll also be able to retain more shares, which can generate a larger return for founders in the long-run if (or when!) your business reaches a high valuation.

You can decide on direction

Distancing your business from initial external investment will also remove the pressure to please shareholders. Taking a big injection of VC money early means you run the risk of becoming tied to their interests and timelines, which may end up steering your business in a direction that’s distant from your own vision. Bootstrapping your business can give you complete creative – and capital-raising – control, allowing you to filter out the expectations that don’t align with your own.

You can perfect your business model 

Bootstrapping your business will also allow you to focus on creating an airtight and scalable model, something that, ironically, will be highly attractive to investors later down the line. During my time bootstrapping Laundryheap, which I did for the first three years, I was able to perfect a strategy and ensure it would be sustainable in the long-run. We had a laser focus on efficiency and the north star was profitability. Developing our services and streamlining our operations at such an early stage helped us to create a stronger business that we otherwise would have.

You can outlast your competitors

Taking a more measured approach may not result in many short-term rewards, but it allows you to play the long game against other businesses in the same sector. Our competitors initially raised huge amounts of VC funding, but several of them took too much cash, too soon, without having a full handle on how to steer their businesses to profitability – because of this, they weren’t able to go the distance.

That’s not to say you shouldn’t ever seek investment in your business, but bootstrapping first will allow you to take VC investment at the right time, on your terms. Bootstrapping allows you to experiment more, and even make mistakes, all of which will culminate in a greater sense of achievement once you’re able to take your business global.

ABOUT THE AUTHOR
Deyan Dimitrov
Deyan Dimitrov
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