The document discusses the challenges and financing options for startups in today's economic environment, focusing on bootstrapping versus raising capital. Bootstrapping allows startups to rely on internal resources, promoting efficiency and independence, but presents risks such as poor cash flow. Conversely, raising capital can lead to faster growth, shared risks, and additional expertise, making it essential for entrepreneurs to consider their strategy carefully.

1. Best approach for a Startup. Raise Capital or
Bootstrapping?

2. Introduction:
Starting a business in the contemporary economic
environment is not for the fainthearted.

3. In fact, there has never been any
ideal time for starting a new
venture. However, there are many
new challenges that startups today
face.

4. Unique challenges today
include high cost of
operations, geopolitical
shifts such as Brexit, a
globalized marketplace,
increased regulations, and
shrinking markets among
many others.

5. Among the main causes of
such failure is poor cash flow.

6. Startup Financing Options

7. For a startup to survive these
formative years, it is crucial to have
a financing strategy in place.
For a startup to survive these formative years, it is crucial to have a financing strategy in place.

8. The two main options
for startups are raising
capital by floating
equity shares or
bootstrapping.

9. It is important to get
more insight on these
two approaches in order
to make the right
decision.

10. 1) Bootstrapping in Brief

11. Like the term implies, you
are able to pull yourself up
using resources within the
startup and without external
help.

12. To become successful, you have to
embrace a multi-pronged approach
in finances and it involves owner
financing, personal debt, sweat
equity (effort), fast turnaround,
subsidy finance, cash-only
approach and low operational
costs.

13. Some of the major
companies that started out
by bootstrapping include
Facebook, IBM, Oracle
Corp, eBay, Coca Cola,
Cisco Systems among
others.

14. A) Pros of Bootstrapping
It is Affordable – You will be forced to
focus on efficiency and this means adopting a
lean business principle.

15. Baptism by Fire – The fact that you don’t
bring in investors with knowledge also
means you have to adapt fast to decision
making which helps you learn how to run
the business fast.

16. Your Own Boss – You will remain your own boss
because you don’t dilute your equity by welcoming
wealthy investors.

17. Faster Progress – You will have more motivation to
build a brand that lasts long and this is one reason
bootstrap startups are more likely to become
household names such as Facebook.

18. Full Focus – Your attention is on your core business and
not on crowd funding and other funding efforts. You are
able to concentrate on your books and strategies that will
make your business grow.

19. Some of the cons of bootstrapping as a startup include
poor cash flow which can hinder growth, lack of
experience, higher risks of losses, and more
responsibilities, among others.
B) Bootstrapping Drawbacks

20. 2) External Financing for Startups
For most startups, there is an urgency to
grow the business. In most cases,
entrepreneurs will have harbored such
ideas for years and when they finally
come around to building the business, it
is all systems go.

21. There are many reasons why you should think for
external funding as opposed to bootstrapping.
Take a look at some of these benefits:

22. a) Faster Growth – One reason why most new
ventures struggle in the initial stages is of
course lack of enough capital. However, if
you seek financial help from an external
investor, you will have the funds required to
spur faster growth.

23. B) Wealth of knowledge – Many investors
bring in knowledge and experience to your
business venture which is something a
startup badly needs.

24. C) Lower risk – By sharing investment risks
with an external source, you will not be overly
exposed to business risks.

25. Final Thoughts
Which is better? Bootstrapping or raising capital? It is
advisable to bootstrap until you finally have a business
profile or a proof of concept.
In such a case, you will be in a better negotiating
position. If you are still thinking a better approach for
your Startup, don’t hesitate to reach us.

26. We are Startup Specialists and we help you GROW.
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