September 5, 2022

Bootstrap or take VC money? Here are 6 key questions to ask before deciding

These are the questions we came back to every time we were "tempted".

The Settly team

It’s a question that inevitably arises for any startup founder: stay bootstrapped or go for funding? 

I still fondly remember the first time a VC reached out to show their interest and let us know they loved what we did. Never mind that we had only just launched our website and had little entrepreneurial experience.

The recognition! And at such an early stage! They even told us we could determine how much money we wanted! It’s easy to be tempted when someone appeals to your ego — but cooler heads prevailed. 


Three years and plenty of temptations later, we’ve chosen to keep our business fully bootstrapped and finance ourselves with our operating profits. But no doubt, we’ll be asking ourselves this question again someday — as will many of you.

So here are a few questions you should ask yourself every time you’re faced with this decision to stay bootstrapped or bring on outside investors.

1/ Do we have a product-market fit and/or a viable business?

Are you still in the stage of defining your product-market fit — which has been described as when users are spontaneously telling others to use your product — or figuring out if you have a viable business? This will have an impact on your ability to negotiate a deal with outside investors like venture capitalists. 

If you’re still working on the business model, you’ll likely have to accept less favourable terms than if your product is flying off the shelves. That might mean giving away more ownership of the business. Sometimes raising money from family and friends or attracting angel investors could be a solution to get past this initial stage — they might be more flexible on terms than an institutional investor that needs to answer to its own investors.

2/ What are our growth ambitions?

"What do we want to achieve and how fast do we want to achieve it?" These were important questions we asked ourselves early on. We are ambitious but wanted to build a business where growth wouldn’t jeopardise the company culture or client experience.

Though we scaled rapidly, 10x growth year-over-year was not our main goal. That’s the kind of growth that’s possible for some businesses because VC funding can help them hire and execute faster. But it’s not what we wanted, therefore we chose not to accept funding.

3/ Do we need the money to continue to grow or guarantee business sustainability?

We were fortunate that our business was self-sustaining, did not consume too much cash and that we were not operating in a “winner takes all” environment — in other words, there was space for more than one successful company to survive in our market.

I can imagine that if you've got a capital-intensive business (eg. in healthtech or deeptech) or if you’re operating in a heavily competitive industry then external funding will probably be necessary. If not and you can continue without external investment, really consider the pros and cons of funding.

4/ Is now the right time to go through an extensive funding process?

Going through a funding round can require a significant amount of time. You will have to get your financial admin and forecast plans in order, potentially have meetings with many investors, get lawyers on board and debate your company valuation... all while also running a growing business. Not to mention the time it can take once your VC is on board. 

Do you want to spend your precious resources on finding funding and going through due diligence or would it be better spent on building out your business?


5/ If we decide to "marry" a VC, what would be important for us to find in that VC?

If we decide to accept VC investment, we want to make sure that they will not only bring money but will also be aligned with our values, understand the market we’re in and will add something beyond capital when it comes to our growth plans.

Maybe it’s too much to ask, but if you give away part of your business the commitment is not for a short period of time — hence the marriage analogy. If you decide to raise, make sure you understand what a VC will bring to the table other than just a check.

6/ Have we done our homework? 

Even if you decide not to take VC funding, you will be better equipped to make that decision if you understand the dynamics of VC. Learn about the process — one great book for this is Secrets of Sand Hill Road: Venture Capital and How to Get It, written by Scott Kupor, a partner at US VC heavyweight Andreessen Horowitz.

Another thing that helped me a lot is to talk with founders who had been through a VC round, people working at VCs and business advisers.

Every startup is different

Finally, it’s important to note that bootstrapping and taking investment from VCs are not the only paths available to startups. Some startups raise debt. Some use grants to fund their business. Some only raise from angel investors. Some use a combination of some or all of these things. 

Every startup is different, so take time to make the best choice for you. Good luck.