How do you fund your startup to take it off the ground? This particular dilemma is faced by every single founder who has ever started a startup. Though many of them make it their goal, which it obviously shouldn’t, funding is the core part of a startup journey and is basically the fuel to your rocket. No matter if the plan is to keep it lean at the start or needs heavy lifting for research and acquisitions, funding is necessary, and the majority of startups die at this stage without that particular resource.

Funding is basically cash required to run your day to day operations and scale your business. It is an essential commodity for all founders to survive and thrive. In simple terms funding are categorized into two simple forms; bootstrapping or raising money.

What is Bootstrapping?

Bootstrapping literally means that you are funding your startup or business with your own personal saved up money, and putting back the finances you earn from your early revenue into the startup to grow it. There are no loans or VC’s involved, and one of the most independent ways to run a business on your own terms. You might have been working at a job and saving up money on the side, and have enough corpus to start a project on the side by bootstrapping.

Pros of Bootstrapping

Bootstrapping means you are your own boss from day one. You are almost always not answerable to anyone for the path and directions you chose and the decisions you make. It is up to you to decide how to progress, at what pace, and at what level.

One more big advantage of a successful bootstrapped startup is that you aren’t diluting the equity of your company at the early stage. Early stage startups are not that valuable most of the time until you gain traction and grow rapidly. Giving away equity for cheap initially at this stage can come back to bite you long term. The leverage to negotiate during future funding will be stronger on your side if you have grown the first few phases bootstrapped and have proved your worth already.

You also learn how to be disciplined and not splurge, and try your best to stay lean with your expenses. As this is your hard earned money you’re pouring into your project, you will be very mindful of spending on core necessary places only, and also learn to cut down unnecessary expenses right from the start.

Cons of Bootstrapping

Though you get to be independent while bootstrapping, there are certain limitations which come with it. Your growth will be at a slower pace due to limited funds at your resource, while startups are usually about scale fast or fail fast. You are basically missing out on tapping the larger part of TAM, or spend more on marketing and acquiring users.

Though lean startups are good enough, you need supporting hands to delegate work so that you can concentrate more on either the product or growth. This is not possible while being bootstrapped, due to not being able to hire more people initially. You might be competing with another startup who is moving at a very fast pace with ample funding, which is leaving you behind in scaling and capturing the market.

Raising Money

In today's day and age, there are literally tons of ways to raise money other than being bootstrapped. You can get loans either from Family & friends, or Banks, or Institutions. Government and Private establishments also support with grants where possible. Then comes the bigger whales such as Angel Investors, Incubators and Venture Capitals, who give you funding in exchange for equity and control over the startup.

We will talk about how to raise funds in future articles, but for now you need to understand the basics about raising funds. Raising money can give you speed, a longer runway, and faster expansion probability, but it comes at the cost of pressure from investors. They need to see results, and they need it fast. Nobody likes to just burn away their money, and would like to see some kind of returns, either with revenue or growth or valuation or just market acquisition.

Which one to choose from?

You need to remember, raising funds is not your goal, it is in fact one of the resources required to reach your goal. You can do it at your own pace and terms by bootstrapping, or go fast and grow rapidly by raising money.

A simple rule of thumb usually is to start bootstrapped, get some early traction and then go for raising money when you have a better leverage to negotiate. Of course, many startups cannot be built with just bootstrapping, especially those which are resource heavy, need ample R&D, or need initial equipment to start out. Such startups are an exception and they have not much of a choice, but the majority of startups can be started bootstrapped and they should if they can, at least initially.

If you put words where your mouth is, and believe in your idea, the investors will be more confident in funding your projects at a later stage. But please don’t go around raising funds without first validating your ideas or understanding the market, and seek funding just because everyone else is doing it. Focus on the customer-first part, and put efforts in convincing them rather than using your energy to convince investors at the start. A good product and a happy customer will anyhow attract a lot of investors. Zerodha has shown the way that even bootstrapped companies can become huge, when grown with good intent along with a good product.

You may also use the FFF rule of funding for most pre-stage startups, if you personally aren’t capable of bootstrapping initially. To elaborate it further, raise your first round from Family, Friends or Fools to get off the ground.

This is the eighth topic of the many resources among the Startup 101 series. You can check out more articles on this topic, as and when we keep writing and publishing them. Our goal is to provide an open, unbiased and helpful resource, which can help you build your startup, and avoid common pitfalls.