Venture Capital vs Bootstrapping: Author Jenny Kassan On How To Determine If Fundraising Or Bootstrapping Is The Right Choice For Your Startup

Venture capital is just ONE model for bringing on investment and it is wrong for at least 99.9% of businesses. But there are other ways to raise money that may be right for you.

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 Jenny Kassan.

Jenny has over 25 years of experience as an attorney and advisor for mission-driven enterprises. She has helped her clients raise millions of dollars from values-aligned investors and raised over $1.5 million for her own businesses. She has launched two investment funds, Force for Good Fund and Opportunity Main Street, an Opportunity Zone fund. She is the author of Raise Capital on Your Own Terms: How to Fund Your Business without Selling Your Soul. Jenny earned her J.D. from Yale Law School and a masters degree in City and Regional Planning from the University of California at Berkeley.

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?

After graduating from law school, I got a job at a nonprofit organization doing community economic development in a low-income neighborhood in Oakland, California. One of my responsibilities was to support the small businesses in the community. I got to know many of the small business owners and was struck by how hard they had to struggle just to keep their doors open. They were so incredibly under-resourced and I started to try to understand why most small businesses have so little access to supportive funding. I learned about the laws governing how businesses can raise financing from investors (known as securities laws) and realized that these laws, while well-intentioned, create a major barrier for most entrepreneurs to be able to access capital. I decided to leave the nonprofit and start a law firm devoted to helping entrepreneurs navigate these laws so that they could raise funding and grow their businesses in a healthy and sustainable way.

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?

When I first started working as a lawyer helping entrepreneurs raise funding, I offered to work with my first client for free because I had so much to learn. We went through a very long process of preparing disclosure documents and filings for the state and federal securities regulators. It took months and finally we got approval to launch the investment offering. My client made a half-hearted attempt for a couple of weeks to raise money and then gave up. I learned an important lesson — fundraising success takes a lot more than having great legal documents and doing all the required compliance. You need to have a serious commitment to sticking with the process until you reach your goal. And not having any skin in the game makes it very easy to give up when the going gets a little rough. Now I ask all my clients to make the commitment up front to devote time and effort to raising money.

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?

Number one has been approaching problems with an open mind and not accepting the conventional wisdom about how to approach fundraising. Lawyers tend to try to fit their clients into cookie cutter approaches. Helping my clients design strategies that were tailored to their strengths and unique value propositions made it much easier for them to reach their fundraising goals. As an example, I had a client who sold organic produce. They needed access to affordable patient capital and did not have plans to sell their company (a family farm that they wanted to pass down to the next generation). I helped them design an investment offering targeted to their customers. The repayment was made in the form of credits for organic produce rather than cash. Their customers loved having the chance to invest in the company and receive their return on investment in the form of food. The company raised several million dollars using this strategy.

Another trait is passion about making the world a better place. When my work gets challenging, knowing that the entrepreneurs I’m working with have the potential to make a serious positive impact is what keeps me motivated.

A third one is compassion. Since I’ve raised money myself a few times, I know that it can be quite challenging. Getting several “no’s” in a row can be demoralizing and it’s hard not to take it personally. When I see my clients getting discouraged, I use what I’ve learned to try to support them and help them get through the rough patches.

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?

I wouldn’t say there was a tipping point, but over time my team and I have developed tools to screen clients to make sure that everyone we work with is a great fit for what we offer. The better we get at that, the more our business thrives.

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?

My boss at the nonprofit I worked at is someone I am really grateful to! She really believed in me and pushed me to do things that were outside my comfort zone. Little by little, I started to see that I could do a lot more than I thought I could!

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?

When I first started in my career, I never thought that I had what it takes to be a successful entrepreneur, much less to raise funding for a business. I just happened to find myself in circumstances where I had to step up to the plate and lead in spite of the fear. Don’t let fear be a signal to move away from something — think of fear as a signal that you are heading in the right direction! It is okay to feel fear — just keep taking the next step and push the boundaries of your comfort zone.

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?

A few years ago, I worked with a group of people to start an investment fund called the Force for Good Fund. The fund was designed to invest in highly mission-driven businesses led primarily by women and people of color. We raised funding from about 135 investors and invested in 13 businesses. Every year, we send a percentage of our revenue from the fund to our investors. Our investors have been incredibly supportive when some of the fund’s investees needed help. I continue to be amazed at our investors’ generosity and desire to make a positive impact with their investments. Investors are motivated by so many things — not just the desire to make a big financial return. They want to have a positive impact and feel part of something meaningful.

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

I have made a few investments over the years in businesses that have failed and I have lost my entire investment. I don’t necessarily consider this a failure. It is natural that some of our investments will not result in a financial return. The important thing is that my money went to support an entrepreneur that was trying to bring something good to the world. Even if that particular business failed, I know the entrepreneur will go on to make positive contributions in one way or another.

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 were so many entrepreneurs that we wanted to invest in with the Force for Good Fund, but we only had so much capital so we had to say no to some that were very deserving. The lesson from that is that there are plenty of great entrepreneurs out there to invest in!

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 question creates a false dichotomy by implying that if you decide to raise funding for your business that it has to be venture capital.

In your intro you asked “What is better, having access to capital or maintaining full control over your vision and profits?” I have worked with dozens of entrepreneurs that have not had to choose. It is possible to raise investment capital and still stay in control of your business. The key is to be aware that there are many ways to raise capital and you can design a strategy that fits your particular goals, values, and plans. Venture capital is just ONE model for bringing on investment and it is wrong for at least 99.9% of businesses. But there are other ways to raise money that may be right for you.

Bootstrapping can kill your business. One of the most common reasons for business failure is undercapitalization. We have coined the term “bootstrap trap.” This is the trap that an entrepreneur can get into when trying to use their own resources to fund their business and they find themselves in a constant struggle.

Here are some signs that you are in the Bootstrap Trap:

1. You are using personal credit cards to pay for business expenses

2. You have or have seriously considered doing work outside your business to pay your expenses (consulting gigs, freelancing, driving uber, etc.)

3. You have taken out a second mortgage or home equity line of credit to pay for business expenses

4. You know you need support like a bookkeeper, web developer, administrative assistant, etc., but you can’t afford it so you do all of those jobs yourself

5. When you do get outside help, you always go for the cheapest option even though the quality is not up to your standards

6. You desperately need some new equipment or supplies to be able to run your business effectively but you can’t afford to buy it or you buy the lowest quality version of what you need

7. You aren’t paying yourself a salary

8. You’re using unpaid interns which can put your business at risk (this could be a violation of labor law)

9. You know your business would grow if you could hire a sales team, professional marketing support, or some other kind of support, but you simply can’t afford the things you need that would help your business grow

10. You keep hoping that if you can just grow your sales a little bit more you’ll finally be able to afford everything your business needs

If you’re in the bootstrap trap, this is likely not sustainable and will lead to burnout, financial ruin, and/or the inability to serve your clients or customers effectively.

It is time to acknowledge that a lack of resources is making it impossible for you to create sustainable revenue. You are in a vicious cycle — without upfront resources, you can’t buy what you need to create a business that generates sustainable revenue.

At this point, you can give up on your entrepreneurial dream or commit that you will find funding for your business and you will do it in a way that allows you to stay true to your goals and values (otherwise what is the point?!?).

Many of my clients start their businesses because they feel that it is their mission in life to create a certain impact in the world and they know in their gut that the business is something that they can’t not do. If you feel this way, don’t give up! You can get funding from investors.

I won’t go into details here, but I use a six-step process with my clients to design a capital raising strategy that allows you to avoid all the strings that come with venture capital funding (giving up control of your business, being pushed to grow as fast as possible at any cost, having to focus on an exit i.e. becoming an attractive acquisition target, etc.).

The key is to be creative about who your potential investors might be, design your investment offering to fit your business and your ideal investors, and choose a legal compliance strategy that allows you to reach out to the investors who are the best fit for you.

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. :-)

My passion is to see massive amounts of capital move into the businesses that are making our world better every day. There is no shortage of capital in our global financial system. The problem is that almost all of it is allocated to making bets in the global financial markets. If everyone with capital moved just a fraction of their investments out of Wall Streat and into small businesses they care about, the impact would be huge — new jobs created, new innovations, revitalized communities, more funding for local governments, and much more!

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. :-)

Jewel Burks of Collab Capital is someone I really admire. She raised money via venture capital for her own business, saw the flaws in that model, and now has started an investment fund that uses a different model that is designed to support sustainable growth and profitability.

How can our readers further follow your work online?

Please visit my web site — we have lots of great resources there. It’s jennykassan.com.

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