Scaling with/without funding
How should a profitable startup weigh the pros and cons of scaling the business while bootstrapping versus scaling with funding?
The question comes down to your own desire and the opportunity for the business. Raising more money to scale a business has implications on the kind of business you want to build. You may, for example, want to maintain more of a lifestyle business rather than sacrifice short term profitability for a bigger win in the end. Either decision is a good one but it boils down to an individual desire.
The second piece centers around the opportunity for the business itself. If internal hiring, for example, is becoming the bottleneck toward building a great business, the decision to take advantage of the opportunity is more obvious. Likewise, if market trends are suggesting a huge opportunity for the business to uniquely take advantage of, that also lends itself to the decision to raise more capital.
The hardest challenge is deciding when to scale when the opportunity is not so obvious. If you scale too quickly, you may over invest, become defocused and potentially cripple the business. That is why in this day and age, it is critical to iterate as much as possible before moving from “lean” to “fat.”
The second piece centers around the opportunity for the business itself. If internal hiring, for example, is becoming the bottleneck toward building a great business, the decision to take advantage of the opportunity is more obvious. Likewise, if market trends are suggesting a huge opportunity for the business to uniquely take advantage of, that also lends itself to the decision to raise more capital.
The hardest challenge is deciding when to scale when the opportunity is not so obvious. If you scale too quickly, you may over invest, become defocused and potentially cripple the business. That is why in this day and age, it is critical to iterate as much as possible before moving from “lean” to “fat.”
I think that the answer depends on what your end goal is for the company.
The answer is not always the obvious “I want to be huge and profitable.” Many people just want to create a valuable company that allows them to live a comfortable life and create value for the shareholders, which may only be you and your family members. If that is your goal, really your only option is bootstrapping.
You retain 100% control of your company, can do what you want with it, and have no one else to consider. When you take outside venture funding to scale a company, you are entering into a contract with the investors. Those investors will at some point need to get out of the investment and return capital to their investors. Venture investors have generally two options to exit a deal – the company needs to be sold or go public – neither option may be realistic or desirable for you.
If you have always assumed you would either go public or sell, have a business that does scale, and fits the general criteria for being venture backed, then you should consider venture funding. The pat but honest answer is that venture funding generally brings more than the money. True was founded by operators who have run and exited successful companies before. We have been down the same path that you are on, thought through the same issues that you are tackling, and, in many instances, made the same mistakes that you may make. Having us involved can usually help you avoid making the irreversible mistakes and generally help you guide the company. Let me be clear, though: it is your company, and we do not pretend to run it. We just want to assist you, the entrepreneur, in any way we can to help you achieve your dreams.
Of course, venture funding is not free, and there are many serious considerations to think about, some of which are discussed above. You are selling a portion of your company, taking on a active equity partner, and potentially taking on a board member. Obviously, we think the value that we bring in capital, introductions, and expertise far outweigh the costs, but ultimately that is for you to decide.
The answer is not always the obvious “I want to be huge and profitable.” Many people just want to create a valuable company that allows them to live a comfortable life and create value for the shareholders, which may only be you and your family members. If that is your goal, really your only option is bootstrapping.
You retain 100% control of your company, can do what you want with it, and have no one else to consider. When you take outside venture funding to scale a company, you are entering into a contract with the investors. Those investors will at some point need to get out of the investment and return capital to their investors. Venture investors have generally two options to exit a deal – the company needs to be sold or go public – neither option may be realistic or desirable for you.
If you have always assumed you would either go public or sell, have a business that does scale, and fits the general criteria for being venture backed, then you should consider venture funding. The pat but honest answer is that venture funding generally brings more than the money. True was founded by operators who have run and exited successful companies before. We have been down the same path that you are on, thought through the same issues that you are tackling, and, in many instances, made the same mistakes that you may make. Having us involved can usually help you avoid making the irreversible mistakes and generally help you guide the company. Let me be clear, though: it is your company, and we do not pretend to run it. We just want to assist you, the entrepreneur, in any way we can to help you achieve your dreams.
Of course, venture funding is not free, and there are many serious considerations to think about, some of which are discussed above. You are selling a portion of your company, taking on a active equity partner, and potentially taking on a board member. Obviously, we think the value that we bring in capital, introductions, and expertise far outweigh the costs, but ultimately that is for you to decide.
