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8 minutes

We're bootstrapping Rivit (and why you should bootstrap too).

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Eric (Rivit’s CTO) and I drank the VC Kool-Aid. We interviewed for Y Combinator and spoke with dozens of partners at venture capital firms to raise money for our first startup. After getting denied by YC and VCs alike, we decided to bootstrap and found that it is a far better way to run a business (for most people). Let me explain.

Bootstrapping versus venture capital funding is a hotly debated topic in the startup world, with passionate advocates on both sides. Venture capital is the best way to build a scalable business, but bootstrapping offers far greater control and security. What should you do? How do you decide which route to take? Here are the key considerations we found and why bootstrapping is (almost always) the better choice.

Venture Capital Pros: 3 reasons to take venture capital funding

Type of company

Venture capital funding makes sense for businesses that need substantial funding to get off the ground. This includes hard tech, biotech, and marketplaces. It's challenging to start these types of companies without significant investment to reach profitability.

Market penetration

If you're targeting a 'winner-take-all' or 'winner-take-most' market, venture capital is crucial. The winner will be the one who executes the best and penetrates the market quickly. Most of the time, it's hard to win these markets without venture capital funding and a significant competitive advantage.

Huge dreams

Want to be Elon Musk or Steve Jobs? Well, you can't build a world-changing company without funding. Elon Musk was bailed out by VCs more times than I can count and Steve Jobs leaned on VCs to get him out of building Apple in his garage.

You need to build quickly while spending more money than you're making for a long period of time. To do that, you need funding. Your odds of success will be infinitesimally low, BUT you will have the opportunity to change the world and receive a fat stack of cash for doing it.

Bootstrapping Pros: Why you should bootstrap your company

You own 100% of your company

Owning 100% of your company is underrated. You don’t have external stakeholders bossing you around, so you truly get to “be your own boss.”

"By bootstrapping, you can build a company that you truly believe in, without having to answer to anyone else."
- David Heinemeier Hansson, Co-founder of 37 Signals

Security

Research indicates that a significant percentage of venture capital backed companies fail. According to a study by Harvard Business School, about 75% of venture-backed startups do not return investors' capital. That's not to mention all the capital you put into it. Yikes.

That being said, it's obvious that VC backed companies are risky. However, most studies focus on the money lost and don't mention the time lost. Imagine sinking 10 years of your life into a company that has been paying you a salary far lower than you deserve and at the end of the 10 years you have a 25% chance to get $50M or a 75% chance to get $0. That's the deal you're making when you try to go the VC route.

While bootstrapping, you're not building a rocketship, so you don't have to hope it doesn't explode on launch. If you make something people want, you don't have to worry about getting a return on your investment. Every additional user will wire money directly into your pocket.

Money money money

This brings us to our next point - financial outcomes. If you're looking to maximize the probability of a life-changing outcome for you and your family, bootstrapping is the obvious choice.

You keep all the profits of your company. Yes, all of them. You can invest them how you please to grow the company, or if you don't want to grow anymore, you can take a vacation to Belize. Nobody is going to stop you.

Bootstrapped companies are way more likely to succeed compared to VC-backed ones. It's not even close. If you have a 50% chance at building a $5M company that you own 50% of versus a 5% chance of building a $100M company that you own 5% of, which are you choosing? The expected value is $2.5M for each of them, so it's down to a matter of preference. Most sane people would choose the bootstrapped route.

Venture Capital Cons: Why building a VC-backed company sucks really bad

Stress

Stress kills. Stress is the worst thing for you since the black plague. Building a VC-backed company requires you to take on an immense amount of stress for many years - literally taking years off of your life. The stress comes from small things like how do I send out this newsletter in time to large things like how do I pay my employees next month. This stress comes from everywhere. You're the boss so you have to hear all of the problems all of the time.

"Being an entrepreneur is like eating glass and staring into the abyss of death"
- Elon Musk, Founder of Tesla & SpaceX

You only hear about the winners

This may be obvious, but the VC-backed companies you hear about are the ones that succeeded, not the 90%+ who failed and made next to nothing. This skews our perception of our odds of success.

That being said, you may be the next Mark Zuckerberg (minus the lizard part). However, you still have to get lucky and build the right thing at the right time. Countless talented entrepreneurs build the right thing at the wrong time and fail.

Luck considered, the odds are against you even if you're the best.

Building a VC-backed company is really really really time consuming

Succeeding takes everything you have. You spend nights and weekends working, miss birthday parties, and ruthlessly cut out non-essential things from your life. While some people may relish the idea of having an excuse to miss their grandma's birthday party, most don't.

Most people want to work so they can live, not the other way around. If you want to live while working, you may want to reconsider taking venture capital dollars.

Bootstrapping Cons: Why bootstrapping sucks (a little)

You own the losses

Did revenue slip last quarter? That directly affects your income. This could mean you're not taking that vacation to Belize we wrote about. Every churned user affects you and your team's runway and you don't have venture capitaliststo bail you out when things get tough.

"Bootstrapping forces you to think creatively, prioritize ruthlessly, and build a business that can sustain itself."
- Jason Fried, Co-founder of 37 Signals

That being said, owning your losses ensures you get crystal clear on your finances and prioritize profitability. This lean methodology helps you avoid running a bloated cash-guzzling machine that doesn't have market fit (shout out to VC-backed crypto companies).

Epilogue: Good luck

Reflecting on our journey, there's never been a clearer decision. There are plenty of great reasons to raise venture capital. We may even change our minds and build a VC-backed company after Rivit. At the end of the day, it's a deeply personal decision that every builder must make. Both paths have great outcomes and bummer drawbacks. If you're making the decision, I hope this article helped because there is an utter lack of content supporting bootstrap.

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