Has Dharmesh Shah lost his mind? (Part2)

Filed in archive Bootstrapper Tips on May 22, 2008

In his great recent post at OnStartups, HubSpots co-founder Dharmesh Shah discusses his decision to raise $17 million in VC funding for the company he bootstrapped with $500,000 of his own money.

Despite his firm commitment to bootstrapping startup principles which tend to discourage large outside investment, Dharmesh defends his decision to take the money and in this case, he's probably right to do so.

Remember why entrepreneurs bootstrap:

• No money. This is the obvious one, but just like someone who can't pay their rent may think twice before sinking huge amounts into the stock market, beginning entrepreneurs are best served by a sense of priorities when it comes to use of meager resources.
• No track record. Not having any previous success is the main reason why no one will give you a big check for that first project and probably with good reason.
• No product. And no business model either. Assuming you could get funding with no record of success, nothing could be more dangerous than handing a beginning entrepreneur a huge sum of money before they had already identified (through practical experience not on paper) a product or service that people will pay for.
• No customers. No one to buy your product means no revenue and no return on investment. Remember, it may take money to make more money but in the beginning without an honest to goodness customer base, entrepreneurs will likely do only one thing with large sums. Spend them.

With an established business model, growing customer base and increasing real life revenues, bootstrappers may reasonably consider outside investment. But make sure the terms are right and the odds in your favor.

Photo Credit: Dawn M Turner, MorgueFile