Starting a business with no money or least money i.e. self funded startups are Bootstrapped startups or ventures which need real entrepreneurship to get profit out of less investment and lesser resources. Such startups or ventures are more customer centric since their day to day operations depends upon the money given by the customers against the certain products or services startups provide.

How Bootstrapped Startups Are More Customer Centric?

Since the ventures are started without the help of venture capital firms or angel investment, such ventures grow with the help of customer’s money. Certain part of customer money is used for the business operations and rest amount is invested back into the business to grow it further.

Often, growth of such ventures is slow because the business first has to meet its operating expenses, to improve the products or services offering, to increase resources, to beat competitions to stay in business etc. Some startups may take on loans or lines of credit, use their credit cards, take small grants for short term to fund specific growth activities but such low cost solutions are only temporarily used in an intelligent way to solve instant problems. These are only secondary source of funds to keep the startup operating and grow it taken by the founders.

When startups use such methods to operate and grow their businesses, they are practicing bootstrapping. Bootstrapped businesses invests at absolute necessary points, use their resources in full way, and derive the profit with less investment.

Pros of Bootstrapping

1. Brings out the best in entrepreneurs, you can find resources to work for equity rather than cash
2. Hones guts, passions and skills in the founders as well as Develops patience
3. Bootstrapped companies are accountable and careful
4. Build loyal customers, partnerships, and recurring streams into their business model
5. Such ventures are governed by the customers and for the customers rather than investors
6. Run the business the way you want, no external forces such as investors or VCs can push you against your will
7. Waste and needless expenditures are less thus losses are negligible or less which attracts funding in future course of actions
8. Full ownership of the company
9. In future, if funding is required, you can get investments from VCs and Angel investors easily. Investors are likely to be impressed by the fact that you’ve managed to build a company entirely on your own, This, in turn, may make them more likely to invest (and to invest more) as they recognize the true extent of your skills and dedication towards your venture
10. Focuses on profit

Cons of Bootstrapping

1. Growth of Bootstrapped companies is very slow since they have less money to implement the idea in full due to lack of resources
2. Face huge barriers for growth
3. Bootstrapped companies may become risk-averse and as a result miss growth opportunities
4. Lack of money causes less or no marketing for the product
5. Grow organically which is slow and time taking
6. Develops risk-averse mentality, preventing startups from capitalizing on big opportunities due to this may not get massive success in this competitive environment

Conclusion on Bootstrapped Startups

Keeping the above thoughts in mind, bootstrapping makes good entrepreneurs great by forcing them to be more nimble, committed, relentless, and action-focused. Although such ventures are not supported by the cushion of external investment, yet there are many entrepreneurs who made their ventures a great success through bootstrapping. Good Luck.

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Starting a startup or a business and implementing idea into reality needs funding in each stages since it is an expensive game which needs money as well as a lot of patience with solid determination to make the product or startup a Success.

Sometimes getting money funded to your startup is harder than simply starting or running a business itself. Fundraising is hard work every entrepreneur knows, as it need endless meetings, pitches, and negotiations on the desk of investors.

So if you are determined for the startup you have given life, the same determination you need to show in front of the investors. We have already covered the stages of startups funding in another article, now let us see the key differences in Seed Funding/Capital and Early Stage Funding/Capital–

Seed Funding/Seed Capital

As we have already covered the seed capital in our earlier article link given above, however Seed capital is the first source of investment your startup requires when it is in prototype stage or you have developed an initial product i.e. a minimum viable product (MVP). The seed capital can be sourced from friends and family (F&F), crowdfunding, credit cards, your personal savings, Syndicate funding (includes a startup, a lead investor and backers), P2P Lending Platforms etc.

The purpose of the money you are raising at this stage is commonly focused on research and development for an initial product, team building and sometimes marketing also.

There are many angel investors and seed accelerators who provide seed capital to the startups against some equities and partnership for the certain percentage in your company. These angel investors and seed accelerators not only invests in your startup but also potential enough to develop and pitch your solution to potential investors of next level.

Before reaching to the investor, first take the time to prepare, research, and validate your idea then approach them for a higher likelihood of acceptance. Apart from above, there are many of the venture capital firms also who are providing seed investments to the startups.

Once you received seed funding, you should provide tangible deliverable and milestones and update the investor regularly on your progress.

Later, when the business is up and running and turning a profit, you can pay them back, or they can sell their stakes to others who are looking for startup investment opportunities.

Early Stage Funding/Early Stage Capital

After the seed funding, when the product has been completely developed or achieved the stage where this can be floated in the market or shipped to the customers and now you want to expand the startup by adding employees or streamlining your production. At this stage, you may get profit out of your startup but that profit is not that enough to cover the costs of daily operations and the expansion, then early stage of funding comes where preferred stocks are allotted to the investors.

Early-stage financing comes in two parts, either Pre-Series A or Series A financing. This stage of funding generates more funding than seed funding usually the risks are equally higher. Angel investors or Venture capitalists are most likely to invest in your business at this stage when the startup has assembled key management, prepared a business plan and made market studies.

Such funding stages are followed by Series A+, Series B, Series C… rounds for additional funding when the startup is getting profitable.

Series B funding is used to make your product more sophisticated, to create aggressive marketing plan and to compete head-on with competitors. During this stage, the criteria for funding is evaluating the profit forecasts, how your company stacks up against its main competition, and whether intellectual property is involved and if so, its value in the marketplace. The funding limits are higher than Series A, but the risks are somehow lower.

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Having an startup idea and implementing that idea into the real grounds are different things and each step taken by the startup needs crystal clear vision and to solidify that vision into reality founder needs funding flow to let visualize the idea.

Money is the fundamental resource to keep the lights on, to build strong team, to build the strong product, to market the product, gaining traction etc.

Raising money/funding may not have been required when you started building the company, but in later stages it is required to gain the sustained growth and traction. There are different types of investors in the market to fund the startups, however different stages are there to understand to get funded from the investors and venture capitalists.

The five startup funding stages outlined below provide a foundation to get you started-

1. Seed Capital

Seed capital is the first source of investment your startup requires. Seed capital as one of the first Startup Funding Stages may be sourced from channels such as friends and family (F&F), crowdfunding, credit cards, your personal savings, Syndicate funding (includes a startup, a lead investor and backers), P2P Lending Platforms. No matter whom you raise money from, there is no free money, and interest on their investment in your startup should be clearly defined. You should provide tangible deliverable and milestones and update them regularly on your progress. The purpose of the money you are raising at this stage is commonly focused on research and development for an initial product, or a minimum viable product (MVP). There are different seed accelerators who are potential options if above mentioned channels are not fruitful. In my view, accelerators are one of the best options available who invests in both your startup and your potential to develop and pitch your solution to potential investors. First take the time to prepare, research, and validate your idea then approaching an investor for a higher likelihood of acceptance is the best idea. Apart from accelerators, there are many of the venture capital firms also who are providing seed investments to the startups.

2. Angel Investment

After the seed funding a startup taken and created a minimum viable product through it, now the time comes to let your startup grow and to this you need to increase funding. This kind of funding is required towards product development, marketing, expand your team to keep up the momentum. For this, angel investors come as a solution. If your startup is raising money at this stage, your business model canvas should be proven. At this stage, angel investors not only help startups in funding point of view but also they help the startups gain success, provide strategic assistance as well as play roles such as advisers also. Angels are different from other investment entities such as Venture Capital firms since they are using their own money and should be treated as such when solicited for funding. They may invest individually or also pool their money with a group. Since the money raised at this stage can be significantly higher than in the seed round, investors will also expect a compelling and well-researched pitch as well as partnerships such as equities in the startups.

3. Venture Capital Funding

Venture Capital Funding comes after the angel investment where the size of such funding is much larger. It is used to scale the business to new business channels, customer segments, or to increase marketing efforts for additional customer acquisition. At this stage, your startup might be either profitable or could benefit from offsetting the negative cash flow with this new wave of investment while the business continues to grow. Multiple rounds of funding such as Pre-series A, Series A, Series B etc. may happen at this stage of funding, and investors may also join the organization and provide additional expertise. In this stage also, various offerings such as equity, SAFE (Simple Agreement for Future Equity), and convertible notes are provided to the investors/venture capital firms. Since VCs are investing other people’s money, their job is to make a sound investment in businesses that are likely to yield a meaningful ROI for their clients. VCs make a careful and critical examination of startups regularly, so when you pitch to them, be engaging and be prepared.

4. Mezzanine Financing & Bridge Loans

This is the stage where your startup seems to be growing significantly with a commercially available product, revenue should be coming in regularly although the startup is not yet profitable. The raised capital at this stage is used towards expansion of startup to new horizons, new mergers, new acquisitions, or the founders may be preparing for an IPO. Investors at this stage want to see a clear road-map towards profit shortly. For example, mezzanine financing can cover the expenses that an IPO involves. With the profits made from the IPO, the mezzanine investor is paid back with interest.

5. IPO (Initial Public Offering)

Very few startups reach at this point where for many this is not the end goal. IPO is an option to expand their business further. All of the investors who have invested their money for equity until this point will ideally recoup their investment along with additional profit, some investors may retain their shares, and some of them sell their stock at the beginning to reap the rewards of getting in early. After the IPO, stock options for a growing company can be leveraged to attract top talent and the increased access to capital can provide resources to push the momentum of your business forward. Planning for an should begin 24 months before since all such as reconstituting the board, setting corporate governance in place, raising a secondary round if required, identifying and discussing with merchant bankers, getting the documentation right takes time. IPO market way is the route where company is in high growth business and gaining profitability and revenues.

Also read- How to create/register a company for startups online in India.

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