Bootstrapping vs VC Funding

Nov 17, 2014 | Entrepreneurship, Leadership, Success

When I founded LexION Capital, I received several offers to fund the firm. These ranged from an infusion of capital to partnership to part ownership in exchange for backing. I turned them all down in favor of funding the firm entirely on my own. In fact, this was essential to my overall strategy. There is a lot of misconception about funding in the entrepreneurial world. The popular perception of venture-funded startups actually corresponds to just a very small slice of the whole entrepreneurial landscape: whereas by some figures 300,000 new businesses are launched in the US every year, venture capital plays a role in less than 2% of them.

The takeaway: Venture capital (hint to aspiring entrepreneurs, we also call this “vulture capital”) is not the only way to go. Angel capital is not always as heavenly as it may seem. If you can bootstrap, you don’t face the prospect of limiting your dream to the time frame and strategy investors want.

Here are three reasons why bootstrapping can be essential to a founder’s success.

1. You own the vision.

Given that my mission was to create a uniquely values-based, incredibly mission-driven wealth management firm, it was very important to me that I remain the sole person in charge of that vision. I knew that by trading capital for a portion of equity in the firm – no matter how small that percentage may be – I risked having to answer to someone whose business recommendations might not ultimately align with what is best for LexION’s mission, even if they said they believed in our approach.

2. You decide the direction.

I was willing to forgo any additional backing for the peace of mind of knowing I would retain sole control over the direction of the firm. If you don’t take on financial backers or investors, you retain complete ownership of your business. Even a “silent” backer ends up having a say when they own a piece of your business.

3. It eliminates the risk of overexpansion.

For one thing, when you’re not answering to a board or to backers, there is no one potentially pushing you to expand before you are ready. Further, bootstrapping your business means that you can only grow proportionately to your success. Hire on your time frame, and grow as your profits allow.

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