Why Startups Don’t Always Need Venture Capital
It’s easy to think external funding is the only model for success. Much of the business media’s attention follows the development of venture capital funding, and being backed by a lush flow of financial support is an understandably tempting safety net for any business venture.
Many entrepreneurs run out to raise money because they think they have to, but I’m telling you don’t.
When 99% of startups are unsuccessful in getting external funding (according to Fundable), it’s because the majority go after it for the wrong reasons. Pursuing it at the wrong time can have long-lasting negative repercussions for your business, and there are many inherent advantages to taking the self-made route instead. Some of today’s success stories found their footing through bootstrapping — GoPro, Craigslist, Tough Mudder, GitHub, to name a few. Even 60% of Inc. 500 CEOs launched their first companies with less than $10,000.
When I founded my two companies — Travelers Haven in 2008 and Hotel Engine in 2014 — it was a conscious decision to grow them as self-sustaining businesses. And so far, the many advantages of staying self-funded have far outweighed the obstacles.
Retain control over the equity and direction of your company.
When you accept external funding, you’re accepting those new shareholders to influence your business’s growth beyond cash flow. You might be forced or pressured to make decisions that go against what’s best for the company in favor of what’s best for them, especially at crucial moments early on. Essentially, your own investment and power will be diluted.
Bootstrapping allows you more freedom in decision-making and more flexibility to follow your instincts. You can purposefully select the members of your core team, whether that’s a co-founder or group of advisors. Had I accepted funding, it may have changed the profile and course of my companies. I was able to keep business moving in a direction that followed my vision and cultural values.
Be passionate, and you’ll become resourceful.
One of the core values for both of my companies is to keep a healthy obsession. Every decision hinges on whether it will be the best move for our customers; if it’s not, we find another way. This mentality forces you to get creative and scrappy with the limited resources and capital that you have. When you’re a one-person company or work with just a small team (as I did in the beginning), everyone needs to develop a versatile skill set that goes beyond a specific role. This only works with passionate people willing to wear many hats.
Super-efficiency becomes a necessity. At Travelers Haven and Hotel Engine, we have to take on a lean business model and low burn rate because our day-to-day costs are integral to our survival. No number of investors or venture capital can make up for a lack of passion.
Embrace the right risks.
Growing a startup will require all the dedication, grit, and imagination you have, but from that comes experimentation. Bootstrapped companies have the leeway to test different strategies and seize the right opportunities at the right time. It also allows entrepreneurs space to develop their product or service and gain traction before becoming too prominent. Waiting on venture capital funding for the right time will allow for better valuations and leverage in the future.
It may seem like you’re missing an opportunity to expedite your company’s success, but you’re also avoiding the risk of early exposure. My own choice was to remain under the radar until it made sense not to be. Raising any funds would have changed my companies’ profiles permanently.
You won’t waste your time and energy on funding you don’t need.
Above all, you need to focus on the core aspects of your business. Scrambling through pitches and rounds of funding often leads to squandered hours and stress, when your attention could be focused on becoming operationally lean and cheaper to scale.
This is simply because success with investor funding is no guarantee for success for your business. Knowing that so few startups actually win over VCs and angel investors, it’s clear that when many ask, “How can I secure VC?” they should be asking “Should I get VC?” or “Can I grow my company without VC?” This is especially true when as high as 75% of U.S. venture-backed startups fail, according to Harvard Business School senior lecturer Shikhar Ghosh. It’s clearly not an all-in-one fix for every business.
Ultimately, time spent persuading investors is time you could invest in improving your product and operations to match your own pace and vision. If you want to grow a disruptive startup, your focus should always remain on what supports your long-term bottom line.