Self-funded option: Bootstrapped

We’ve been looking through the lifecycle of venture-backed startups from pre-seed to post-IPO, but that does leave a gap that we need to cover – bootstrapped startups. A company is said to be bootstrapped if the founders are using their own money to cover the company’s expenses, rather than raising any additional outside capital.

Bootstrapping allows founders to retain full ownership of their company as they are not giving up equity in return for investment. By maintaining control they are not forced to go all-in and hit the high growth targets that venture-backed startups need to meet to receive additional funding. This gives bootstrapped startups some flexibility in how they choose to operate and where they focus their attention.

Of course, this flexibility comes with a (literal) cost – until the bootstrapped company reaches a financial break-even point they will have to limit their expenses to what the founders can personally afford to cover.

The choice of whether to self-fund or raise capital will usually come down to the goals of the founders – if they are trying to be the next hyper-growth startup with a huge valuation then they will generally seek external funding, but if they are content with a slower pace of growth and a smaller company (often referred to somewhat derisively in tech as a “lifestyle business”) then they may choose the bootstrapped approach.

As a potential employee you would generally expect to find that a bootstrapped company would be a less stressful work environment with a better work/life balance than a venture-backed startup. But as bootstrapped companies tend to grow slower and have limited financial resources, if you are looking to maximize your income or experience riding the startup “growth rocket” then you may prefer to go down the venture-backed startup or established tech company routes.