What are the benefits of bootstrapping or self-funding a startup instead of accepting outside investments?

Typically, you cannot get outside funding until you have developed some team, plans and an MVP product (minimum viable product or prototype) from serious investors. People are misled by headlines thinking they can raise millions from outside investors with none of these. That only happens if you already made other investors rich, in which case it is likely you would fund your startup’s seed stage yourself to prevent early dilution.

Over 80% of startups fail because the founders underestimate the skills and team required. There are about 40 skills sets needed to build a scalable startup. Usually this requires a team of three people with 15+ years’ experience each to launch successfully. The college graduate that built a $100M startup is a myth propagated by ignorant reporters who fail to look behind the front person and just want headline click bait.

Bootstrapping is done because most need to do that with personal, co-founder and friends and family money to complete these three steps above before there is value in the business. Remember investors are buying stock and an idea has literally zero value. Even a patent on a process only gets 2% to 5% of the revenue, the team and investors will get the rest. The false belief that an idea is “worth millions” is a common misconception. That is never true as no idea generates money or is even protectable from copying by better funded and positioned competitors. Value is created when you build these components. Then the stock is worth something. This is called a “Pre-money valuation” and it can be very small or $5M depending on many factors. That is what determines what percentage of the company you have to give to the first (seed) investors. This could be 30% to 80% depending on what actual equity value you have created. The further you get bootstrapping this less equity you will need to give to investors. Most billionaires went a long time before getting outside capital bootstrapping and hence kept a lot more of their own company.

Smart founder bootstrap longer with sweat equity and personal and family funds to drive the valuation further up before selling then first shares. Co-founders and employees may take stock as pay or a reduced salary for stock options because the price per share can increase by 100% to 1,000% in a year or two if the opportunity is a good one and a strong team is assembled.

You can see my free course on the process of designing, building and launching a startup here:

We also have a webinar on raising capital here: https://www.ceobootcamp.us/capital

Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. He helps established companies scale faster using the six AirTight Management™ systems. And helps companies raise capital.

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