4 Benefits of NOT Receiving Venture Capital for Your Startup
By Yatin Patel
Starting your own company always involves taking a risk. Launching a new venture without any outside capital means taking an even bigger leap of faith.
While would-be entrepreneurs are often dazzled by stories of large venture capital investment, those Silicon Valley fairy tales are the exception not the norm. According to Fundable, only .05 percent of startups are funded by venture capital, and only .91 percent receive angel investment. In fact 57 percent of new companies are funded by the founder.
While bootstrapping your own startup might be harder and decidedly less glamorous, it does afford a level of autonomy and freedom you wouldn’t get with investors involved. As a self-funded startup you’ll have less money to work with and need to do more with limited resources.
As co-founder of a self-funded e-commerce business, I found that four things led to our ability to be successful without any initial outside investment capital.
Relentless Focus on ROI
In all businesses, cash is king and even more so for a bootstrapped startup. Without outside investment, you need each of your decisions to be ROI positive or you won’t be able to scale properly. In the beginning many owners lose sight of ROI as they pursue their dream, but this is the time to refine your concept because you’re still small and nimble enough to pivot if necessary. This is the time to experiment with different strategies to identify the formulas that work best for your business. Remember, if you can’t make the economies work at a small scale, there is little likelihood it will fall into place as the company grows. In E-commerce companies you are fortunate to have plenty of data at your disposable to help identify what things you’re doing that are truly ROI positive.
Quality Over Quantity
When startups get an infusion of outside cash, one of the first things they do is ramp up employees in order to facilitate the growth investors expect. Often though this leads to rash hiring decisions. When you’re self-funded, you must be much more judicious in your hiring. You need to not only look at what a candidate brings to the table for a specific initial role, you need to be able to forward-think in how that person can grow with you as the company expands. In the early stages, having generalists and people who can multi-task are imperative.
Slow and Steady
While outside investors want quick growth, it can often be better in the long-term to grow at a slow and steady pace. This measured approach will put less of a strain on people, processes and systems associated with your business. For self-funded companies it’s important to not benchmark your growth with businesses that have raised millions in venture capital. Don’t compare apples to oranges.
All entrepreneurs better get ready to embrace the fact that getting from point A to point B rarely involves a straight line. You may have founded your business focusing on a product or service you believed in, but once in the real world, it was actually something else that the market was demanding. Successful entrepreneurs don’t take challenging market feedback personally, instead they listen to what the market is saying and pivot their products and services to meet demand. Without outside investors to answer to, bootstrapped startups can react to what the customer is saying quicker, providing a competitive advantage.
Starting a business is exciting. Don’t let the lack of outside funding keep you from pursuing your entrepreneurial dreams. Most businesses don’t have the luxury of venture or angel capital, so invest your equity and your sweat equity and take the plunge.
Yatin Patel is the cofounder of Reservations.com.
Startup funding stock photo by EtiAmmos/Shutterstock