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From the very beginning, business owners face the challenge of financing their business. At this point, there are two options. Start-up financing strategy and so-called Bootstrapping or investment. Each of these options has its advantages and disadvantages. But which one is right for you? Bootstrapping or Fundraising?
Which method of financing should we choose: bootstrapping or attracting foreign capital?
You will not find the answer to this question in any other article or source. It is entirely up to you to decide. All you have to do is make a decision with the highest level of awareness and take into account the different aspects. Our intention here is to help you analyze and evaluate the situation correctly to find the right way to achieve your goal.
So the goal is to review the correct analysis of the various scenarios ahead so that you can finally make the right decision based on the situation you are in. In the first step, it is best to look at the pros and cons of each of these financing strategies.
Advantages and Disadvantages of Self-Starting Financing (Bootstrapping)
Self-financing (bootstrapping) requires a special spirit and high perseverance. Therefore, those who are successful in this strategy can be well adapted to the limitations of choosing this scenario. Despite all the difficulties and limitations of its financing, several important advantages of this method can be mentioned:
• First, it is much easier to prioritize projects in this way. In this way, you will simply focus on the project that has the greatest potential for success.
• Another advantage is that only those who are really involved in the projects and serve the company will contribute to the success. When the company’s budget and capital are limited, only those who are compatible with the company’s space, culture, and structure can act in accordance with its standards.
• In this case, the company will focus entirely on maximizing profits.
• You can be completely independent in deciding on the company’s future and own most of the company’s stock.
• Instead of spending time finding an investor, you can focus on making the company bigger and more profitable.
Some of the world’s most famous companies have achieved the same strategy. TechCrunch, for example, one of the most visited and reputable technology websites in the world, used its start-up financing strategy in the first six years, until it was eventually acquired by AOL. AOL spent $ 30 million in 2010 to buy the website. Meanwhile, Mr. Arrington, one of the founders of this website, still owns 85% of the company!
Attract foreign investment or venture capital
Although attracting foreign capital at the outset may greatly reduce the share of the company’s founders, choosing this strategy will bring many benefits to the company:
• Attracting foreign capital in the first place will mean that investors approve of your plan and believe in its efficiency and effectiveness.
• The presence of investors in the position of economic consultants makes the founders constantly think about the growth and development of the company and correct their ideas and plans in this direction.
• Attracting capital helps the company to be present in the market in a shorter period of time, experience a higher growth rate, and be able to attract a larger team and top talent.
• Capital attraction gives the company the opportunity to try ideas and change strategy
• And finally, starting a business requires a lot of initial capital to start a business, so there is no other way but to attract foreign capital.
Decide according to the exit strategy
Although it is not entirely possible to predict the future and it will usually be very different from what actually happens, one of the most useful ways to create a general understanding of change is to choose one of the methods of raising capital and how it affects Your exit strategy is considered. So don’t overdo it:
In the near future (for example, in the next 5 years), what percentage of the company’s share do you intend to have?
Which capital will be more valuable by choosing which share?
Will attracting big capital allow you to grow your company and grow your business? Or is it freedom of action that enables you to implement ideas and build a successful company?
By asking these questions and trying to get the right answers, Ratiba Group helps correct business performance. In this way, the skills and experience of the experts will help the managers and entrepreneurs of the collection to make better choices for the company’s capital financing strategy. As we said, choosing the method of financing is ultimately a decision that the entrepreneur and the founder of the company must make. However, this choice is made according to the conditions and goals of the company, which requires data analysis, evaluation and expert opinion.