Bootstrapping with 50 K
Filed in archive Bootstrapping Trends on July 22, 2008
Not too long ago, blogger Taylor Davidson and I debated the value of a future economic system where Venture Capital or something like it might fund less expensive "lifestyle" business startups at a much lower level than the Twitter's and Facebook's of today.
Now, entrepreneur Andrew Goodman worries about a micro-financing trend of supplying bootstrapped startups with a $50,000 infusion to help them get up and running-and so do I.
Goodman is concerned that if bootstrappers:
• don't have the ingenuity enough to sell your car
• beggar thy neighbor
• go nuts on your credit cards
• or just moonlight and grind
Then maybe $50,000 won't do much to help-or worse!
I'd argue any quick cash infusion that isn't sustainable can do more harm than good to a startup, especially one that is simply "promising" and does not yet have a proven business model.
I have high hopes for www.postranger.com but if someone handed me $50,000 tomorrow for investment, I wouldn't know exactly what to do with it.
Yes, the network has a growing on line audience, but so far it has yet to establish enough substantial cash flow based on that traffic. I don't see how $50,000 would help this situation.
In the end, when PostRanger starts developing a sustainable, predictable cash flow, $50,000 may be beside the point. Today, without a proven business model in place, it would simply be a distraction.
Photo Credit: Dani Simmonds, MorgueFile
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Response from:
Taylor Davidson
(07/22/08 10:56pm)
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Growth usually requires capital. It's up to the entrepreneur to determine when they need that capital. What's wrong with them determining they need it at an earlier stage?
I'm a believer in bootstrapping, in entrepreneurs self-funding until they need outside capital to create a growth stage. But that point where they need funding is a different choice for every entrepreneur. And sometimes it's impossible to "prove" a model by generating cash flow without outside capital.
Without a doubt I'm in favour in spending time creating products, not features, and businesses, not technologies. But there is a lot to be said for using small amounts of funds to take chances (both for entrepreneurs and VCs) to see how the froth of intellect hit the market and see what happens.
And remember that entrepreneurs often take capital for reasons beyond money: connections, business development, etc.
In the end it's an entrepreneurs choice, which depends on their business plan. Bootstrap as long as it makes sense, then find capital to grow. Pay attention to the terms of capital being accepted. And raise the right amount of money to fund their business plan appropriately (which usually means as much as possible).