Rob Walling offers reasons to bootstrap vs. taking on funding from others
He founded six start-ups, including five that were bootstrapped, and has a fund named TinySeed that is the first accelerator designed for Software-as-a-Service bootstrappers.
In our final article spotlighting presentations at last week’s “Startup Mountain Summit” in Johnson City, we wanted to share the ideas that Rob Walling advanced in a presentation titled the “Trade-offs of Bootstrapping vs. Funding.”
It’s an area that he knows well. Walling has founded six start-ups, including five that were bootstrapped. He’s invested in more than 150 start-ups; written four books about the start-up scene; co-founded the original conference and community for bootstrapped Software-as-a-Service (SaaS) founders, MicroConf; and started TinySeed, the first accelerator designed for SaaS bootstrappers.
At the outset, Walling acknowledged that “you can build incredible companies either way. Anyone in this room can bootstrap a company. I’ve been on all sides of the table.” He also explained that he was “never the entrepreneur that wanted to change the world.” Instead, he said that he was a former electrician who was motivated by a desire to provide for his family.
Walling defined bootstrapping the way that I have always heard it described – not taking any outside funding other than from founders or co-founders, although some might include friends and family (F&F). He included those in the F&F group in a category that Walling defined as indie funding that also could include some angels.
“Only one percent should raise venture capital, nine percent should be indie-funded, and 90 percent should be bootstrapped,” Walling advised. What are the advantages and disadvantages of each category?
- Bootstrapping: The pros are that it is simple; the founding team maintains full control, doesn’t need permission to act, and can work on building the business rather than the slide deck for the next investor pitch; and the business can run for decades. On the con side, it’s is harder, moves slower, frequently lacks mentors and a network, and is at times difficult to impossible.
- Venture capital (VC): The pros include an ability to move fast, hire senior people earlier, secure an instant network including mentors, and gain market credibility. The negatives include growth at all costs which could include aiming for unicorn status too fast, lots of fundraising, potential loss of control although not as much of a concern these days, and potentially foolish spending.
- Indie: On the upside, Walling said the growth expectations are lower, there are opportunities to network and find mentors, and founders can maintain their options for base hits rather than unicorns. The negatives include lower valuations compared to VC-backed start-ups, not for every type of start-up, and the funding options are limited.