Venture Capital vs. Bootstrapping: Kelly Lyons of Lyonshare On How To Determine If Fundraising Or Bootstrapping Is The Right Choice For Your Startup

Time to market: If you’re trying to go to market quickly, perhaps because of competitive dynamics or to take advantage of something that’s happening in the market right now, you might need to raise capital in order to move with speed because you don’t have the time to build everything yourself, or wait around for word of mouth marketing. There’s usually a ton of work to get done before you’re ready to market, so if it’s just you, or you and a few other people (vs. a complete team), it may take a long time to get it all done.

Founders are often faced with the nagging question of whether Fundraising or Bootstrapping is the best choice for them. What is better, having access to capital or maintaining full control over your vision and profits? What is preferred, to have the seasoned oversight of an experienced investor, or to plow forward with a disruptive and pioneering ‘can do’ attitude? Of course, every situation is different, but what standards can be used to help a founder decide? As a part of this series called “Venture Capital vs. Bootstrapping: How To Determine If Fundraising Or Bootstrapping Is The Right Choice For Your Startup”, I had the pleasure of interviewing Kelly Lyons.

Kelly is a professional business builder who has helped raise over $4bn in equity working across Wall St, Fortune 500 companies, and startups most recently as the President of bitcoin fintech company Casa. Her company Lyonshare has helped 150+ startup and fund founders complete successful fundraises through strategic business planning, compelling pitch deck content and design, financial models, branding, and strategic advisory.

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?

Having spent time earnestly trying to switch from Wall Street to Startups, I realized there was a gap of finance talent working in and around the startup community. I saw a white space opportunity in providing investment banking services to startups, because they weren’t receiving much needed strategic financial consulting that Fortune 500 companies were benefiting from.

Can you share a story with us about the most humorous mistake you made when you were first starting? What lesson or takeaway did you learn from that?

One day the heat broke in my apartment, so I put on my Knick’s beanie to stay warm. I forgot to take it off before getting on a Zoom call with a potential client. I was embarrassed in front of the client when I saw my unprofessional Zoom reflection. Turns out however that he was a Knicks season ticket holder, and LOVED the hat. I learned not only to select the Zoom setting to “preview” what you look like before joining a video call, but more importantly to not sweat the small stuff. The potential client has become my largest client to date.

You are a successful business leader. Which three character traits do you think were most instrumental to your success? Can you please share a story or example for each?

Tenacity, attention to detail, and authority (no pun intended).

With regard to tenacity, I’m constantly cold-emailing or sending requests over email . I have no qualms about not getting a response, or not getting the response I wanted. You miss every shot you don’t take and as an entrepreneur you can’t afford these misses.

For attention to detail, because I came from the investment banking world, I really believe that if there’s one single mistake, even if it’s the most minute thing, it makes it seem like there’s something else more important that you could have missed. If you want to lead your own company, you can’t be making any mistakes in any work product that goes out. It’s worth the extra five minutes to just double check it.

On authority, if you don’t command yourself as a leader, it’s very hard to get people to pay you money and do things you’ve requested, especially when it’s hard work. Even if you might feel imposter syndrome at certain times, you should not present that way to colleagues, and especially not clients.

Are you able to identify a “tipping point” in your career when you started to see success? Did you start doing anything different? Are there takeaways or lessons that others can learn from that?

For my business, it was about building up a portfolio of work and spreading the word through that successful track record of work. I was delivering almost as good of a job in the beginning as I am now, but I couldn’t prove it. So the tipping point was just time so that I had enough people that had received our services, found them super helpful, and told other people about their experience

None of us are able to achieve success without some help along the way. Is there a particular person or mentor to whom you are grateful who helped get you to where you are? Can you share a story about that?

Interestingly enough, all of my mentors have been men because they came from the world of Wall Street where I only worked with men. One was the CFO of an Apollo company I took public my first few months at Morgan Stanley. More than a decade later I reached out to him without years of being in touch, and one of the first things he said when we got on the phone was, “How can I help you?”.

You have been blessed with great success in a career path that many have attempted, but eventually gave up on. Do you have any words of advice for others who may want to embark on this career path but are afraid of the prospect of failure?

I think what’s most difficult when you’re just beginning in the services business is how to price your time. If you’re not sure what your hourly rate should be, you should figure out what you’d want to make as a full time employee, and how many hours you plan to work each year. That number is probably lower than what you should be charging as an hourly rate because hourly work isn’t guaranteed, but it’s a good starting point for you to work up from. There is no failure here, just insight. If you charge too little you’ll know by never getting any push back, and if you charge too much you’ll know from getting many potential clients passing on your services.

Ok, thank you for that. Let’s now jump to the main part of our discussion. Can you share a story with us about your most successful Angel or VC investment? Or an investment that you are most proud of? What was its lesson?

I’m excited about my investment in digital behavioral health startup and client — aptihealth. The founder came to me about a year ago seeking help in preparing for a Series A extension. They successfully raised this round and upsized it to the maximum the board would allow ($7M). We didn’t include options as part of their payment structure, but I was so impressed with the management team that I asked to receive my success fee in equity and the founder was happy to do so. We’re now preparing them for a Series B. My approach to client work as a trusted partner is priceless. I want them to see me as a valuable long-term asset not a one-time outsourced service provider.

Can you share a story of an Angel or VC funding failure of yours? What was its lesson?

Early on I wanted to work with this specific client, so I allowed them to pay for my services only in options. I think when you allow that, you get clients who aren’t as serious as they come off, or clients that might be in a bit too much financial trouble than they’re letting on. I didn’t properly diligence that company before I decided to accept that offer, and I’m pretty sure my options will never amount to anything. Moving forward, if I accept equity as payment, I make sure that I properly diligence the company and the founder as if I was making an investment with my own money.

Is there a company that you turned down, but now regret? Can you share the story? What lesson did you learn from that story?

There isn’t one yet, but I’m sure over time there might be end up being a few. However, you can never regret something as an entrepreneur. There are so many high-pressure decisions that need to be made daily, and all you can do is make the best decision provided the information you have at the time.

Super. Here is the main question of this interview. Let’s imagine that a young founder comes to you and asks your advice about whether Venture Capital or Bootstrapping is best for them? What would you advise them? Can you kindly share “5 things a founder should look at to determine if fundraising or bootstrapping is the right choice”? If you can, please share a story or example for each.

This decision is all about cash flow timing and revolves around the founder’s time to market, go-to-market strategy, upfront costs, competition, and percentage ownership desired. In summary if you need more cash than you can afford to spend based on your business plan, then you should fundraise.

Time to market: If you’re trying to go to market quickly, perhaps because of competitive dynamics or to take advantage of something that’s happening in the market right now, you might need to raise capital in order to move with speed because you don’t have the time to build everything yourself, or wait around for word of mouth marketing. There’s usually a ton of work to get done before you’re ready to market, so if it’s just you, or you and a few other people (vs. a complete team), it may take a long time to get it all done.

If you have to move fast (depending on your business), you’ll likely need a team, and in order to pay those people you might need to fundraise, especially if they are good engineering talent and/or you’ll likely need marketing spend to spread the word, which is not cheap. However, if you have a more relaxed timeline, bootstrapping could be an option.

Go-to-market strategy: If you’re going to market via word of mouth, then that will cost you very little and could work with bootstrapping. Also, if the company is B2B, you could possibly find one or two sales people that would be willing to work on a high commission basis so that you don’t have to incur upfront sales costs ahead of bringing in revenue.

If your company is making the type of product that needs a direct marketing campaign, like a big launch, you typically cannot do this in a small way. This would be more expensive and likely require a fundraise. If it’s direct to consumer and you really need to pay for big marketing in order to generate fast sales growth, you might consider fundraising so that you don’t botch your launch with a meager ad campaign.

Upfront costs: In your business plan, you’re predicting that you want to target a certain amount of revenue each year, let’s say it’s $1M in year one. What costs will be incurred to generate that $1M? If it’s low, bootstrapping will probably work. If it’s high, you might need to consider a fundraise or consider lowering your revenue targets.

Competition: If there’s a competitor that you’re trying to beat, then perhaps you’re going to want to spend more in marketing or more in product development to develop a new feature that they don’t offer, which may require a fundraise. If you have limited competitors, you might be okay taking your time. Perhaps customers could use a beta version of your product before the real version is ready and still find that really helpful. Then you can continue to build slower while refining the product and attracting customers. This approach could be successful with bootstrapping.

Ownership: The bottom line is, no matter your preference on the prior four topics, if you want to retain close to or exactly 100% ownership, you have to bootstrap. If you’re happy to give away ownership, and it would be accretive to your equity value, then you should consider raising outside capital. Fundraising will give you access to mentors, networks and partners that you wouldn’t have if you’re bootstrapping. However, do know that you end up giving away a lot of your company for very little at the early stages, so see if you can’t try to build something by first bootstrapping so you can target a higher valuation once you go to the capital markets. Understand also that you don’t need to keep raising once you begin, but typically companies that get on that train can’t jump off.

You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

I would put more women in leadership positions. It would be a flywheel effect of good — women think about things differently, they care a lot more about their employees and culture, and they don’t agree to as many bad deals that hurt employees and other counterparties. But it’s more than that. Let’s start at the elementary school level. It’s not creating women in business programs now for women in their thirties. It’s a mindset shift that needs to change from the very beginning of how women are educated and treated compared to men.

We are very blessed that a lot of amazing founders and social impact organizations read this column. Is there a person in the world with whom you’d like to have a private breakfast or lunch, and why? He or she might just see this. :-)

If there was someone I wished to have a private lunch with, I already would have made it happen. Remember — tenacity!

How can our readers further follow your work online?

You can keep up with my company Lyonshare, by following me on Medium (where I write about VC fundraising and startup culture) and Twitter, or work with me by booking a strategy session HERE.

Thank you so much for this. This was very inspirational, and we wish you only continued success and good health!