Growing a startup takes capital, and very few entrepreneurs have the personal capital to fully finance their business. The two main options when seeking funding are either bootstrapping your business or pursuing venture funding. Bootstrapping entails doing whatever it takes to raise your own money and minimize the amount of equity distributed to investors. Oftentimes, this process includes approaching friends and family for funding or loans. Venture funding is the process of approaching professional investors who will inject massive amounts of money into your business in exchange for significant equity.
The consensus among many entrepreneurs and investors alike is to go as far as you can with your own or borrowed money before seeking venture backing. Pursuing an investment from a venture capital firm is very high risk and expensive. The firm will push you to pursue massive growth at all costs, as they need to meet their own benchmarks. On the other hand, bootstrapping allows a firm to grow more organically and at a safer rate. Additionally, bootstrapping allows the founders to maintain more control over the startup.
JB Osbourne, the CEO and co-founder of Red Antler, has to this date not pursued venture backing. He has successfully grown his business organically with small seed loans from his parents. He sees this strategy as a positive, but recognizes that in the future to continue growing, he may need to look into other options:
David Ahlers provides a different perspective on funding. He is a former managing partner and founding participant of Cayuga Venture Funds. While Ahlers approaches the situation from the opposite side as Osbourne, he would probably agree that Osbourne is using the right strategy. As Ahlers explains, venture funding should be reserved for situations where there are no other options. When a large capital investment is the only way to continue growth, then and only then should venture funding be used:
Finding the balance between bootstrapping and venture funding is difficult. Venture funding has been glorified in the media, but the true risks are often forgotten. It is important to survey all options and use venture funding as a means to an end, and not an end in and of itself.