Launched Your Bootstrapped Startup? Let’s Explore What’s Next!

Go Beyond Bootstrapping And Diversify Your Funding To Grow Before It’s Too Late!

You are not the only entrepreneur who is looking to make a transition to different startup funding sources. Usually, people choose to start with bootstrapping, but with limited funds, it gets difficult to cover unexpected expenses and invest in growth, so they decide to switch. Even if you are not transitioning right now, knowing the alternative options, such as equity, debt, or non-dilutive funding options, can prepare you for the future. Learn more about it here!

Key Points

• Around 83% of entrepreneurs globally opt for bootstrapping to launch their startups.
• 55% of startups launched through bootstrapping do not change their source in their first year.
• 75% of bootstrapped startups switch to other funding sources during expansion.

Why Seek Startup Funding Options Beyond Bootstrapping

Around 83% of entrepreneurs globally opt for bootstrapping to launch their startups. Bootstrapping your startup means investing your personal finances to launch your startup. This prevents the need for money from outside sources such as investors and lenders. It is an efficient method to fulfill the short-term needs of your startup. However, bootstrapping might not satisfy your startup’s expansion plans. Suppose you have established a new production unit with expensive equipment. The life expectancy of each piece of equipment is, on average, eight years.

But what if there is an accident and all your equipment gets damaged? Can you handle such unexpected expenses with your bootstrapping every time? Well, the truth is that with bootstrapping alone, managing and growing your startup can be a bit difficult. A startup journey is filled with dynamic challenges and unexpected expenses. While 55% of bootstrapped startups switch their funding source within the first year of operation, 75% make the switch during the expansion stage.

Alternate Startup Funding Options

If you want your startup to grow, you need to explore other funding options as well. All of them have their own set of benefits and boundaries, so be sure to do enough research before making the decision. Let’s discuss them one by one and explore what suits you the best:

1. Equity-based Funding Options

Equity-based funding involves raising capital by selling ownership stakes (equity) in the company to investors. In return for their investment, investors receive business ownership shares. This type of funding does not require repayment of the invested capital but does dilute the ownership percentage of the existing shareholders. Equity-based funding sources include:

Angel investors: These are affluent individuals who provide capital for startups in exchange for ownership equity or convertible debt. Angel investors typically invest in early-stage companies and often offer mentorship and expertise along with funding.

Venture capital (VC): In exchange for equity, VC firms invest in startups with high growth potential. They usually invest more significant sums than angel investors and are involved in later-stage funding rounds. VCs also provide strategic guidance and connections to help startups scale.

Syndicate: Syndicate platforms allow startups to raise capital from many individuals, often in exchange for early access, product discounts, or other perks. Syndicates operate similarly but are typically led by experienced investors who pool funds from multiple investors to invest in startups.

When to choose equity over bootstrapping: Equity-based funding options are suitable for startups that require significant capital to scale quickly or those with high growth potential. If the startup founders are willing to give up ownership or control in exchange for funding and expertise, equity-based financing may be preferable to bootstrapping.

2. Debt-based Funding Options

Debt-based funding involves raising capital by borrowing money from lenders with the promise of repayment, typically with interest, over a specified period. Unlike equity-based funding, debt-based funding does not involve selling ownership stakes in the company. Instead, the company assumes a legal obligation to repay the borrowed amount according to agreed-upon terms. Debt-based funding sources include:

Small business loans: These are traditional loans from banks or alternative lenders. Startups borrow a fixed amount of money and repay it with interest over a predetermined period. Small business loans often require collateral and a good credit history.

Revenue-based financing: This financing involves investors providing capital to startups in exchange for a percentage of future revenue until a predetermined amount is repaid, along with a multiple of the investment. It’s particularly advantageous for startups with predictable revenue streams as repayments are tied to revenue rather than fixed amounts.

When to choose debt over bootstrapping: Debt-based funding options suit startups with a steady revenue stream or valuable assets to use as collateral. If the founders want to retain full ownership and control of the company without diluting equity, debt financing may be preferable to equity financing.

3. Non-dilutive Funding Options

Non-dilutive funding refers to sources of capital that do not require the company to give up ownership or equity in exchange for funding. These funding sources typically do not involve repayment of the invested capital either. Non-dilutive funding sources include:

Grants: Grants are funds governments, foundations, or other organizations provide to support specific projects, research, or industries. Unlike equity financing, grants do not require repayment or the relinquishment of ownership.

Competitions and awards: Startups can participate in competitions or pitch events to win prize money, investment, or other resources. These events provide opportunities for networking, validation, and exposure to potential investors and partners.

Corporate partnerships: Collaborating with larger companies can provide funding, resources, and access to markets or distribution channels. Corporate partnerships may involve joint ventures, licensing agreements, or strategic alliances.

When to choose non-dilutive funding sources over bootstrapping: Non-dilutive funding options are ideal for startups that want to retain full ownership and control while accessing capital or resources to support growth. If the founders prefer not to dilute equity or cannot secure traditional financing, non-dilutive funding sources may be attractive alternatives. Additionally, startups pursuing projects aligned with the objectives of grant providers or corporate partners may find non-dilutive funding options particularly appealing.

Now that you have many options and understand why you can choose any of them, it’s time to take the next step. Especially if you are looking for equity funding sources, you should start looking for opportunities to connect with investors. However, if you are struggling with it, you can approach Exitfund. Here, you will experience the startup funding process with great opportunities. You can raise more than a million dollars through outstanding efforts.

Conclusion

Relying solely on bootstrapping can limit your startup’s growth opportunities and expose it to various risks. By diversifying funding sources, startups can access a broader range of resources, reduce dependency, and mitigate potential financial challenges. Also, do not get stuck with one funding source because your needs will differ at different growth stages. For example, equity-based funding works well for early-stage growth. Debt-based financing can be beneficial for later-stage expansion.

Non-dilutive funding sources, like grants, provide extra support for specific projects or initiatives. Startups can enhance their financial resilience through it, increase their chances of success, and position themselves for long-term growth and sustainability. To ensure that your funding diversification plan aligns with the promising future of your startup, thoroughly analyze your industry and plan ahead of time. Further, if you have more questions, you can share them with us!