To seek or minimize VC funding for your startup?

Posted on December 17, 2007 Updated on December 18, 2007

I’ve just finished listening to “Bootstrap Finance“, an article by Amar V. Bhide (audiobook by audible available here).  This is quite an old Harvard Business Review article published in 1992, at a time when Word Perfect was still a household name. He argues, and I’m paraphrasing, that you don’t need VC funding or at least you don’t need lots of them and would fare better if VC funding can be minimized.

Entrepreneurs better do it the old fashion way, where they focus on a niche segment of the market, generate break-even cash as soon as possible, and only grow as necessary, thus minimizing the need for huge sums of capital.  It takes longer and requires more patience, wits, and creativity, but you retain control, freedom, and can run below the radar under much less pressure.

It seems like good old fashion advice.  However, looking at the way startups are started today, it seems like people are doing it as if they will be crushed by faster competitors if you don’t grow big fast.  You either grow fast and dominate your market, or you’ll die. Is it really true ?

Anyways, some good advice for startups from the article:

1. Get Operational quickly
   Just jump in and do it, if necessary copy other people’s business first.  Don’t wait for the big breakthrough idea.  Opportunities will come once you jump in.
2. Look for quick break-even cash generating projects
   bootstrapping startups need to get cash to cover expenses as soon as possible.  Think of ways to generate this and don’t consider it as distraction to your core idea. This is how a startup can survive.
3. Offer high value products or services that can sustain direct personal selling
   Use your personal passion and salesmanship and willingness to go the extra mile as a substitute for big marketing budget to convince consumers to buy your product/service.
4. Forget about the crack team
   Strong core team is needed for VC to fund you.  If you don’t need VCs then you can manage without having that strong core team initially.
5. Keep growth in check
   Grow only at a pace which you can sustain with your current resources.
6. Focus on cash, not on profit, market share, or anything else
   In startup mode, cash, more than anything else is king. It’s even beyond profit and other strategic goals.
7. Cultivate banks before your company becomes credit worthy
   Maintain good relationships with banks so that you will be able to get loans from them when you need them later.