Opinion

Bootstrapping Vs Venture Capital Fund – Which to choose?

Bootstrapping - cfamedia

In a country like Nigeria, where the cost of running a business, can be overwhelming, if a clear strategy that guarantees, steady flow of funds is, not settled, it is almost impossible, for the business to survive.

The steady inflow of funds is, the lifeblood of every business and a shortage can cause a massive set back, in the growth of the business.

According to a report by a bank, detailing the failure of businesses in Nigeria, 80% of businesses crash and burn out, within the first 18 months of starting up and one sure reason for this is, the little, or, no inflow of funds.

With the steady rise of entrepreneurs across the globe, the need to generate funds, to power, business is, now more pronounced.

There may be the need for a budding entrepreneur, to make a choice on how to fund their businesses, from these two ways; Bootstrapping, or, seeking Venture Capital funding.

Countless number of start-ups are, usually, stuck in the loop of, either, bootstrapping their business, or, raising a venture fund. They just do not know how to go about the funding of their business, but one certain point is that, at times, the type of industry and capital required, do play a huge role here.

The amount of capital required to kick-start a business, the industry the business is operating in and goals of the start-up will point you, instinctively to, either, Bootstrap, or, seek Venture Capital funding.

It is highly imperative for start-ups, to have a clear understanding of Bootstrapping and how Venture capital funding works, before choosing.

Bootstrapping

Bootstrapping involves the start-up, basically, financing the business, through the use, of funds generated from the business and personal funds.

It is a one man show, without the founder, having to deal with and report to external groups, before taking major decisions. Investors are absent here.

MailChimp is one example of companies that bootstrapped and despite investors swarming around with millions of cash, they stuck to their gun and it paid off.

Not all companies that bootstrap will succeed, especially, if the founders do not have a steady inflow of cash.
The start-up may not grow very fast and bigger organizations can beat it, out of the market, by offering the services the start-up offers, at a cheaper rate.

There was a time that Google, just, could not compete with Yahoo and it was nearly sold off, as funds were not forthcoming, but now, with the enormous funds pumped in by Venture capitalist, Google was able to topple yahoo and become the world’s best used, search engine.

Venture Capital

Venture Capital, (VC), is basically, the funds injected into a start-up by an external body, (investors), such as Venture Capitalists, Venture Capital Firms, or, Angel Investors, which is, an investment in exchange for equity in the start-up.

With much cash flowing in, the scalability of the start-up is, most likely to accelerate, as the founder has more funds available, to execute ideas, push boundaries and acquire more talents.

Acquiring capital funding is, however, not a stroll in the park. Everything, starting from, how you pitched, the viability of the business, its scalability, vision and goals, etc., must align, before investors buy into the start-up.

By accepting funds from Venture Capitalists, to run a business, the start-ups lose the ultimate right of taking decisions, single handedly and a certain percentage of the business, known as equity, goes to the investors.

There is also the probability that the founder can be ousted out of the business.

The bottom line is, this. No matter what funding type you decide to go with, between Bootstrapping and Venture Capital funding, the pros do not outweigh the cons, neither does the cons outweigh the pros. It is, evenly, matched.

Founders just need to think clearly and live with the consequences of the decision taken.


Featured Image: boxofficehub.ng


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