Considering options for start-up funding, but not sure if you should be bootstrapping or raising equity?
If your start-up is gaining traction and performing well, you might be looking for the best ways to raise money to leverage that momentum. But where can we find that extra capital? When it comes to securing the necessary funding for your business, there are generally two options to consider: bootstrapping and raising equity. In this article, we’ll go over the key differences between your options and how to choose the right start-up funding to suit your business.
Start-up funding with bootstrapping
Bootstrapping involves funding your business through your own funds and also sustaining it through its own revenues. This is a great option if you have some personal savings already, run a business with low overheads or have cash-flow that is allowing you to reinvest profits directly. You also keep full ownership of the business, giving you full control and flexibility in making decisions. If having creative freedom in your business is a priority for you, bootstrapping should be a serious consideration. However, bear in mind that this kind of funding can also require patience, as growth can sometimes be slow.
Raising equity from investors
Raising equity involves start-up funding that is injected into the business in exchange for shares. Investment can be acquired from friends and family, angel investors, venture capital funds and other sources. The source of your funding will depend on the type of business you run, your network and how much capital you’d like to raise. Venture capitalists are looking for large businesses with huge potential for success. Friends and family are more interested in your personal growth and would potentially only be able to provide smaller sums. With the extra external investment, also comes a compromise on how much control you have in your business. This can come along with other responsibilities such as shareholder meetings and paying dividends to investors.
Our Bean Ninjas growth journey
Many start-ups are self-funded first and later raise capital from external investors. Meryl Johnston, our founder, took the bootstrapping route initially and started Bean Ninjas on only $1000 in personal investment. But one choice does not have to exclude another, a few years later Bean Ninjas also raised capital from investors. So depending on the stage of business growth you’re at, both start-up funding options can be viable at different times. What stage are you at with your business right now?
Understanding the key financial metrics
Whether you’re funding your venture growth from personal resources or looking at receiving the best deal from investors, keeping on top of your business finances is key. The Bean Ninjas literacy training and mentorship can help you to prepare your accounts and stay on top of the numbers. The better you understand your financials and metrics now, the better you can forecast for the future, maximise your use of resources and build trust with potential investors.
Are you curious about your start-up funding options and want to learn more? Charlie Ross, Lawyer at Cake recently shared some valuable insights into how we can fund our business in an article titled “Bootstrapping vs Capital Raise – How to fund your venture”.
In this article, Charlie takes a closer look at:
- How to decide between bootstrapping and capital raise options
- The considerations in structuring your equity
- Tools to help set up your share registry