BOOTSTRAPPING OR VENTURE CAPITAL: WHICH IS THE BEST WAY TO FUND STARTUPS?

While firms like Mu Sigma and Freshworks have made it big with VC money, Zerodha and Zoho prefer the bootstrapping way and are equally successful.

Venture capital investments in India grew four-fold in 2021 from the previous year as India’s startup ecosystem reached an inflection point. According to a YourStory analysis, the VC investments in the country reached a record high of $38.3 billion in FY22, driven by a combination of COVID-19 tailwinds and sound macroeconomic fundamentals, among the major global economies. This year, India surpassed the milestone of 100 startups entering the coveted $1 billion-plus valuation club and becoming unicorns. In a world of mega-fundraising sprints, many startups prefer to go the steady way and choose the path of bootstrapping. Most startups that prefer bootstrapping are those with the goal of controlled growth that wants to stay in the game for the long haul instead of relying on external funding for accelerating growth quickly.

Also Read: Understanding Venture Capital

The current economic situation (of the funding winter) means entrepreneurs across the board are being more frugal, highly innovative, and more focused on acquiring customers without the cash burn. Two sides of the same coin There are numerous shining examples of how fundraising has successfully accelerated the growth of many startups. At the same time, there are equally fascinating stories of bootstrapped startups attaining unicorn status. For every one of these success stories, whether bootstrapped or VC-funded, there are many more that resulted in downing the shutters. There are stories of success as well as failure on both paths—be it venture-backed or bootstrapped; the path itself is not a great indicator of whether one way or the other is better. The decision to choose the ideal path for your startup idea depends upon various factors like market demand for the product/service, opportunities for growth and scalability, founders’ inclination towards independence, and so on.

Also Read: The Ultimate Guide to Securing Funding for Your Startup

The right approach for a startup funding strategy is not a straightforward one but some key considerations can help in the decision-making process.

Also Read: How to Build a Brilliant Visual Product Roadmap

Vishal Soni

Vishal Soni has more than 16 years of experience in trading and structuring credit products and has worked across multiple geographies such as London, Singapore, and Mumbai with Deutsche Bank. In his last role at Deutsche Bank, Vishal was a key member of the Portfolios Trading team acquiring performing and non-performing loan portfolios backed by commercial real estate, residential mortgages, and consumer loans across Europe. Vishal also has extensive experience in underwriting commercial real estate transactions. He has also managed end-to-end structuring of CLOs, RMBS, ABS, and whole-business securitization transactions.