Convince Me I Don’t Want VC Funding: A Love Letter to Bootstrapping

A Love Letter to Bootstrapping, Part I

love letter

One of the key points in our introductory post, What it Means to be Snappy, was that Snappy is a bootstrapped business.

The term “bootstrapping” comes from the image of pulling yourself up by your own bootstraps. In other words, doing something yourself, without outside help.

In terms of starting a business, this implies little to no reliance upon outside investors; bootstrapped companies are typically funded by the entrepreneur’s own savings and early cash flow from the business itself.

This is how I imagine my grandfather building his business. It’s how most of us think of the past, the old American Dream. But is it still valid today?

It seems like every two minutes there’s a new story about some hot young startup raising funds from venture capital firms or angel investors. The stereotype of Silicon Valley is not the penny-pinching bootstrapper working his way up; it’s the 20-something entrepreneur, flush with VC cash.

Is this really how businesses are born in 2014?

Actually…no. Not according to the data. In spite of the success stories we see in the media, common wisdom holds that VC firms fund one out of every hundred proposals they see. And last year, Forbes published an article helpfully titled “Why 99.95% of Entrepreneurs Should Stop Wasting Time Seeking Venture Capital.”

99.95%. Wasting time.

From that article:

The reality is that most ventures do not qualify for venture capital and never will. According to the Small  Business Administration, about 600,000 new businesses are started in the U.S. each year, and the number of startups funded by VCs was about 300. This means that the probability of an average new business getting VC is about 0.0005 (300/600,000), and it also means that 99.95 percent of entrepreneurs will not get VC at startup.

So why do we see so much VC funding in the media? If it’s so rare, why is it so overwhelmingly glamorized?

Because it’s sexy. It’s a geek’s Cinderella story: a smart, hardworking nobody builds something and is immediately rewarded with respect, prestige, and big piles of cash.

It seems too good to be true, and for most of us, it is.

So what are the 99.95% supposed to do?

Look, most of us are never going to be Cinderella. As a little girl, I was educated by my mother not to expect fairy tales, to make my own happy ending. That’s as true in business as it is in life.

The good news is there’s a definite precedent. Many successful entrepreneurs in the current market, Snappy’s founder included, don’t buy into the VC hype. For them, it’s a no brainer. Because not only do they accept that they’ll most likely never be backed by venture capital…they don’t want to be.

Ian Landsman is a leading voice in the bootstrapping world. He truly believes bootstrapping was the best way to build his business, UserScape, which encompasses both Snappy and its sister product, HelpSpot. I asked Ian one simple question:

[inlinetweet prefix=”” tweeter=”” suffix=”via @BeSnappy”]Why wouldn’t I want somebody to hand me a million dollars to grow my business?[/inlinetweet]

In other words…convince me I don’t want VC money.

His response was a list of 7 points, all of them pretty convincing arguments for bootstrapping.

Rather than dig into them all here, I decided this topic was best presented as a series. So this is the first of at least 7 posts on the topic of bootstrapping, and specifically arguments in favor of building a business without outside funding.

Our Love Letter to Bootstrapping in 7 parts.

Unsurprisingly, the first item on his list?

 

“Most people likely CAN’T get funded.”

 

[inlinetweet prefix=”” tweeter=”” suffix=”via @BeSnappy #bootstrapping”]”Most people” means 99.95%. “Most people,” in all probability, means you.[/inlinetweet]

 

In the coming weeks we’re going to explore Ian’s other 6 points, all based on the idea that even if you CAN get funded, you might not want to. If you want to keep up and haven’t signed up for our newsletter yet, now might be a good time to do so. (Don’t forget, there’s a free ebook in it for you, as well.)

 

Additional Reading

I’m really excited to explore all the benefits of bootstrapping, so look for those posts as they come! While you wait, here’s some reading you might enjoy. Two of these are from the April 2014 issue of Inc Magazine, so it seems this is a timely topic!

The Blessing of Not Enough Money, by Norm Brodsky for Inc.

Why Money Isn’t Always Your Biggest Problem, by Elaine Pofeldt for Inc.

Startup business principle 1: Bootstrap with a sense of urgency, by Nkem Mpamah for Cambridge Network

 

More in this series:

The Cost of VC Money: Loss of Control

The Cost of VC Money: Loss of Freedom

Image credit: cambridgenetwork.co.uk


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