The Cost of VC Money: Loss of Control

A Love Letter to Bootstrapping, Part 2


love letter

Recently, I asked Ian to give me one good reason to turn down VC funding, and instead he gave me 7.

The first reason, if you missed Part 1 of this series, was that most people probably can’t get funding from venture capitalists.

The remaining reasons, though, are more about why you might not want to, even if you can.


Reason #2: Loss of Control

You’ll have a board that could in theory fire you anytime from your own company. The spin is always that VC’s bring value by making connections and new ideas. The other side of that coin is they exert their control and you may be forced to run the business a way other than how you want.

[inlinetweet prefix=”” tweeter=”” suffix=”#bootstrap @BeSnappy”]When an investor writes you a check, you’re selling ownership of your company. Period.[/inlinetweet]


This is not news, but what does it really mean?

Investors are not employees, and sometimes not even equal partners. You are no longer running the show, because it’s no longer your show.

You need to think about politics, about investor relations, about keeping people happy.

You probably need to worry about where the next round of money is coming from, so you’ll be focused at least some of the time on your pitch rather than your product.

And your decisions are not just yours now; they reflect on your investors, and your investors will expect to have a say in them.

Investors are not in the same business you are.

You’re probably in the business of creating and selling products. Maybe products you care about, deeply. Products that have kept you up nights for years. Investors are not in the business of making products. They’re in the business of making money.

When you maintain control of your company and product by bootstrapping, you get to try and build the exact product you want, exactly how you want to build it. In Ian’s words,

Perhaps more important are the things you don’t have to do. You can choose not to focus on growth. Your focus may be on working fewer hours, building something you want to exist versus a more profitable alternative, or working from the road.

Read this really fantastic article by Rachel Calmers, which contains this piece of wisdom:

Bootstrapping a business can be a great life, one in which you control your own destiny and have latitude to work on projects that speak to your heart.

And this one, Why Bootstrapping is Better than an Accelerator Program, in which Amy Hoy quotes a 30×500 alumnus:

Don’t ever feel that you are missing something by not being 22, up to your eyeballs in the latest technologies, working 20 hours a day at some hot little startup, mentored by former one-hit-wonder CEOs or slickster VC types.

You know what you should feel like you are missing? Total control over your life, including how and what you work on.

Don’t be in the race to grow big and fast, so you can become like the next human dumping ground. The world doesn’t need another tragedy built on HR orgs and technological fiefdoms. It needs a million more real businesses, creating joy and making money.

Matt Morris worked for a startup that raised more than $40 million.

They had a lot of great things going for them, but in the end, they belonged to their investors: “A decision was made to ‘exit,’ and not in a manner that worked out well for the employees.”

Matt says he has no hard feelings towards the investors. After all, “They had to make the right decision for themselves.” But at the end of the day, the right decision for investors is not always the right decision for the people working every day to build something they care about. “I ended up feeling that if you’re going to work your ass off to build something you think is great, you want what you build to last. If investors are holding the reins, that’s no longer up to you.” (Read Matt’s comments in full, along with some other bootstrappers’ thoughts on the subject, here.)

Of course every investor is different. They’re human beings. You may find one who will serve as a partner or even a mentor. Or you may end up locked into a partnership with somebody you can’t stand, or with a group of somebodies whose goals are 180 degrees from yours, and who expect you to fall in line. Or, like Matt, you may end up with investors who exit as quickly as they entered, and leave your business for dead. That’s a risk you take when you accept an investor’s money.

From the Calmers article:

This is the biggie. VCs aren’t unintelligent. Nor are VCs evil (not all of them anyway). They’re not even necessarily misaligned with you. What they are doing is optimizing for a very specific outcome. Share that alignment, or don’t take their money.

Even if you’re fortunate enough to work with investors you adore, the simple fact remains that when your company is funded by other people’s money, you are no longer your own boss.

[Tweet “When you’re funded by other people’s money, you’re no longer your own boss. #bootstrap @BeSnappy”]


And for most of us, isn’t that the whole point of starting your own business?


Additional Reading

Why Bootstrapping is Better than an Accelerator Program, by James Jeffers via Amy Hoy

Five Reasons Not To Raise Venture Capital, by Rachel Calmers for Model View Culture

The Problem with Investors, by Nick Prudent on Entrepreneur by Design.

A Love Letter to Bootstrapping is a series exploring at least 7 arguments for bootstrapping, 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.)

More in this series:

Convince Me I Don’t Want VC Money

The Cost of VC Money: Loss of Freedom

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