Running a successful business requires a great deal of capital.
Raising capital helps a business realize its objectives and accelerate its growth. It usually happens through equity funding, including bank loans and crowdfunding, or through old-fashioned bootstrapping. The question of whether to bootstrap or raise equity comes down to the type of company and how it is going to be built.
Various factors such as the uniqueness of the product, the maturity of the market, and the types of growth, challenges, and limitations play a considerable role in deciding which method to adopt in funding a Tech Startup:
First, as an entrepreneur, you should decide whether you want to adopt aggressive growth accompanied by loss of ownership and control but directed toward an eventual exit? Or whether you want to adopt a slower growth that allows you to keep full ownership and control?
Second, you should decide How much control do you want to exercise over your own company.
Bootstrapping is doing your best to build your business with your resources from scratch. It forces you to prioritize your spending and cut away unnecessary expenses.
On the other hand, while funding is selling your idea to an investor in exchange for ownership equity in the startup. It capitalizes your business idea in a short window of market opportunity and forces you to have more financial discipline.
Third, you should set your long-term goals and your vision. A big part of determining whether to pursue funding is looking at whether your long-term goals and vision align with your investor’s (s). When raising equity, you turn over a portion of your ownership to your investors. They can advise or dictate how you do things to ensure your business decisions are likely to maximize returns.
In other words, equity funding ensures more resources for your business. Still, it obliges you to account for creditors with a vested interest in how your company performs, with an eye on the exit.
The need for an exit is nonetheless a feature of equity financing. It’s the way through which investors get their money out of the company (by selling or taking it public). If you aren’t interested in this trajectory for your company, you should instead consider bootstrapping.
Fourth, you should know that the fundraising process requires lots of time and energy. To make a valuable investment, you need to believe in your business. Hence, to become the next Careem, you should:
- Target addressable market.
- Have little to no direct competition to limit market share and potential returns.
- Successfully execute your plan(s).
It is essential to understand that funding is not the only route to success for tech businesses. Bootstrapping offers you the possibility to keep control and understand your business, market, and product’s fundamental dynamics and working mechanics.
The key to success lies thus in finding the solution that is right for your startup.