Bootstrapping vs VC-Funded Startups: The Path to Founder Freedom

Bootstrapping vs VC-Funded Startups: The Path to Founder Freedom

May 30, 2023

May 30, 2023


Why I made the decision to leave VC-funded startups behind and embrace the world of bootstrapped solopreneurship

In this post, I will tell you the hidden truths that VCs won't tell you and unveil the advantages of bootstrapping for solopreneurs and entrepreneurs. Whether you're looking for a side hustle or aiming to build your own empire, understanding the differences between bootstrapping and VC funding is crucial. Let's dive in and explore the path to founder freedom.

The VC Route: What Lies Ahead

VCs Need Big Returns for Startups

Venture capitalists (VCs) prioritize explosive growth in large markets, often overlooking immediate customer needs. This focus on bold assumptions and chasing the hockey stick growth curve can distract from building a sustainable business.

  • When I first applied to Y Combinator (YC), my 2-year-old bootstrapped company with a 1.2M ARR was rejected. The reason? It didn't have the potential to become a "billion-dollar" company according to the VC standards. However, I didn't let this setback discourage me. The next company I started got accepted, but the expectations had already changed. The question shifted from aiming for "a billion dollars" to "ten billion dollars" in just a few years.

You just hired new Bosses - Board Members

VC funding brings quarterly meetings where founders face pressure and scrutiny. Quarterly meetings become pressure-filled sessions where you report numbers and face scrutiny on why they're not higher. The demands for high growth and profitability erode your autonomy and increase stress levels.

  • "Why is your growth MoM only 10%? why not higher?"

  • "Why is churn still at x?"

  • "Why is your conversion not improved to 8%?"

Welcome Aboard the Sinking Ship

Despite initial funding rounds providing a runway, achieving exponential growth can be elusive for many VC-backed startups. Each funding rounds are usually for 18 months to 24 months runway. As soon as you raise, time starts ticking to deliver the result within the time or you are dead.

Ready for a Therapy Session?

Did you know 50 ~72% of founders report an impact on their mental health - High stress, Anxiety, Burnout, Depression, Panic Attacks, etc. Your mental health will be significantly impacted in the VC-funded path, with high stress, anxiety, burnout, and depression being common. Many founders seek therapy or hire coaches for support.

  • Throughout my entrepreneurial journey, I experienced three burnouts, working over 12 hours a day, often without weekends or holidays. The relentless pursuit of growth and meeting investor expectations took a toll on my well-being. I even developed back problems and had to visit a chiropractor every week just to cope with the physical strain.

You Don't Truly Own Your Company

With each funding round, excessive dilution occurs, leaving founders with less ownership. VCs often end up with preferred stock, diminishing the dream of full ownership and control.

  • In VC-backed startups, founders frequently face substantial dilution with each funding round. Though it may appear glamorous to raise millions and get acquired, the reality is that VCs hold preferred stock, leaving founders with less than 20% ownership and minimal returns after taxes. You will be surprised how common this is.

Embracing Bootstrapping: The Solopreneur's Path to Freedom

Forget the Unicorn Chase

Bootstrapped businesses don't need to conquer mega markets to disrupt industries. By focusing on a small niche, solopreneurs can create simple, valuable products that solve real problems.

Here are some amazing non-VC backed products in #buildinpublic that is solving a real problem or providing value in a niche

  • BannerBear: Bannerbear helps you auto-generate social media visuals, ecommerce banners and more with our API and integrations @yongfook

  • Collect video and text testimonials. Share them everywhere. Convert more visitors and close more deals! @euboid @helloitsolly

  • SiteGPT: Instantly answer your visitors' questions with a personalized chatbot trained on your website content @pbteja1998

  • TinySnap: No more boring screenshots! Select what you want, tweak the graphic, and you are good to share @LuoBaishun

  • gitStat: Create scroll-stopping animated GIFs of your #buildinpublic stats to boost engagement and keep tweets sexy @maxecc

You are Your Own Boss

One of the most significant advantages of bootstrapping is the unparalleled control you have over their company's development. Embrace the freedom that comes with being in full control of your options. Build, experiment, and grow at your own pace without the external pressures of meeting investors' demands. Shape your business according to their vision and priorities. You can still do all the things that startups do, but ONLY IF you want to.

Never Run Out of Money

The primary reason businesses fail is running out of money. Bootstrapping ensures that you deploy only the time and resources you have, providing financial stability. Starting as a side hustle? Great! You'll never have to worry about running out of funds.

A Path to a Happier Life

For bootstrapped solopreneurs, the goal is not always about chasing immense wealth. Instead, aim for just enough to enjoy more freedom. Cherish spending time on what you love and with the people you love. Remember, money's true value lies in buying time for a happier life.

  • Remember why you started this journey. Money is not the ultimate reason. It is the freedom you want to buy with money. Do not over-trade time for money

Your company is owned 100% by you

Take control of your destiny by structuring your company finances according to your preferences. All the profit generated remains 100% owned by the you and your team, empowering you to reinvest and grow at your own pace. Some of Tax benefits are just some of the perks it comes with 😉

Conclusion: Unlocking the Potential of Bootstrapping

Whether you're starting a side hustle or building a full-scale business, understanding the pros and cons of bootstrapping versus VC funding is crucial.

In conclusion, bootstrapping offers solopreneurs and entrepreneurs unparalleled advantages in terms of freedom, control, and happiness.

I’ve met over 100+VCs and went through YC, and Techstars. Most of them agree: "Bootstrapping, without external funding, is the best path for founders, though it's challenging"

By embracing the challenges and rewards of bootstrapping, you can unlock the true potential of your entrepreneurial dreams.

I cheer for all of us working toward our dreams.


© 2023 LaunchLane Inc.

Reach me here 👉

© 2023 LaunchLane Inc.

Reach me here 👉