I am following Startup ecosystem for 4-5 years now, both Indian one and Silicon valley one and most of the first time entrepreneur struggles to figure out if they should bootstrap or raise money. Raising money is very lucrative and sounds great for first timers, all the million dollars investments which we read on startup blogs often make entrepreneurs think that there is lot of easy money or the best way to build the business is to raise money. Unfortunately this is NOT the complete picture. VC money comes with lot of strings attached and often ends up founders losing control and in worst case (which often happens), founder making very less or no money.
This is what I can suggest
When to Bootstrap
1. If you have some of your own money to invest or the initial team can complete the whole sales cycle form development to sale. So if you can be profitable without any external funding, don’t raise money. If you wait, you will get much higher valuation.
2. If you love your freedom, keep bootstrapping. I am bootstrapping because i love freedom over money and some how will feel suffocated if I become an employee.
3. When you are unsure about your path – by going slow, it gives you more time to learn. It is well known fact that first you learn, then you earn. By building a strong base, you can build a much stronger company which eventually will have more value.
When to Raise Money
1. If you don’t have any money – I personally feels if you don’t have any money, you are better of raising some money. There is no point in taking extreme risk. Living on Ramen noodles and working 18 hours ignoring family and health is extremely stupid. Just give up 20% of the company and raise some money. Ideally you want to raise minimum 50 lakh as even very small 5-6 companies can have burn rate of 5 lakh per month.
2. If you think you have figure out the business model, growing but need more money to speed growth – normally this phase after 2 years and more running operations.
3. Any India centric business will eventually become operations based business meaning you will be needing hundreds of employees and offices in various cities. Even if your offices are just based out of one metro, your expenses will be huge and you will be needing external funding. I don’t think it is possible to build a big business now without VC funding as the cost of running a business has become huge, it has become extremely easy to copy business models and there is lot of easy money available relatively.