Should you Bootstrap your Startup or Consider a Venture Fund?

ByShardul Bhatt
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With the boom in remote communication, Zoom became a powerful player in the video conferring industry. In 2019, the company went public with a valuation of $9.2 billion at a share price of $36. Based on this price, a lot of Zoom’s investors, executives, and employees multiplied their stake’s value twofold through the startup venture fund.

Emergence capital partners have the largest stake of 11.9% in the company, valued at $1.1billion. Sequoia Capital achieved equally astonishing returns. The VC firm owned 10.8% of the video-conferencing giant in April 2019, a stake worth around $994M at the $36 share price. Sequoia only backed Zoom’s Series D.

In the past 2 years, the company has become a crucial software to embrace remote work. The company announced that its revenue grew by 326% year-on-year and reached $2.7 billion. Zoom’s market cap was $90billion in May 2021, a tremendous increase from $9.2 billion from its IPO valuation in 2019. 

(Source: CBINSIGHTS)

Bootstrap and Venture Funding: A Real-world Overview

77% of small businesses mainly fund themselves via personal savings and finance. However, only 40% of all such businesses are reportedly making any profit. 30% of new businesses are breaking even, and the other 30% record continual losses.

54% of payments and transaction services are funded by venture capital worldwide. It makes FinTech one of the largest industries in terms of capital. 

Globally, venture capital financings, including startup ventures, touched a new record in 2021 with $621 billion in combined deals, which was more than double the $294 billion recorded in 2020, CB Insights stated in its “State of Venture” report released in January.

Bootstrap or Venture Funding: Which Path to Take?

Both bootstrapping and startup venture funding are significant ways through which startups can drive their growth. However, there are certain elements involved that startups need to consider before making the final decision on capital or hiring a software product engineering company. 

Let us look at how bootstrapping and startup venture capital firms work in terms of different parameters when it comes to startup growth.

  • Freedom to execute
    Bootstrapping offers the maximum amount of freedom to startups. They can execute their ideas as they wish. The founders can dictate the approach of the company’s operations and focus on what’s best for the company. On the other hand, venture funding takes away the freedom from founders and dilutes it between investors and management. In business, when there’s a set product that can generate revenue and doesn’t need too much freedom, venture capital is a great idea
  • Speed of growth
    Another factor to consider is the speed of growth. Bootstrapping will keep the founders and startups a little behind in growth. Since the focus will be mostly on serving the customers and generating profits, reinvestment will be left on the sidelines. Venture funding focuses on the rapid growth of the startup. Venture capitalists pour in money and resources to help startups grow so that their investments can be returned as soon as possible.
  • Access to capital & experts
    Bootstrapping doesn’t work when the startup requires tremendous capital to succeed and guidance from experts in the field. Venture funding allows startups to acquire tons of capital that can be injected to turn a unique idea into reality. Venture capitalists also bring in their years of experience and expertise. They act as mentors and guides to help the company steer itself in the right direction.

Conclusion

Today, most startups focus on acquiring venture funding because of the benefits it brings, including software product engineering services. Apart from financial capital, it also brings in human and infrastructural capital as well. Therefore, it makes sense for them to seek out venture capitalists. Companies like Tntra Ventures, however, act as innovation technology ventures that provide a complete infrastructure for product development while injecting the required capital to drive the company’s growth.