Some of the world’s most successful companies began as bootstrapped startups. Ever heard of Amazon, Ebay or Facebook? In fact, bootstrapping is the most common method of early funding for startups. According to the U.S. Chamber of Commerce, 75% of small businesses get started using personal savings for capital.
But what is a bootstrapped startup exactly and what are some benefits of bootstrapping? This guide covers all the pros and cons of self-funding to help you determine if bootstrapping or seeking early funding is the correct choice for you.
What is a Bootstrapped Startup?
A bootstrapped startup is a business built and grown using only the founders’ personal savings and the company’s profits. Bootstrapped startups are self-sustaining, meaning they have zero reliance on external funding from investors or venture capital. Because bootstrapped businesses have limited resources and money, this funding method requires careful financial management, strategic growth, and a sustainable business model.
Examples of Bootstrapped Startups
Many highly successful companies have proven that businesses can thrive without outside investment, including:
- Mailchimp
- Basecamp
- Apple
- Microsoft
- Spanx
- Craigslist
- GoPro
- GitHub
Defining Funded
A funded startup is one that has secured capital from external sources such as angel investors, venture capitalists, or crowdfunding platforms. Funded companies exchange equity or future returns for financial backing that allows them to scale more rapidly and invest in product development, hiring and marketing.
Understanding the Appeal of Being a ‘Bootstrapped’ Startup
Bootstrapping is a huge test of resilience and resourcefulness for founders. But if done successfully, growing a business without external funding has huge benefits for entrepreneurs.
Ownership and Control: You call the shots when you bootstrap because you don’t have to answer to investors. Founders who bootstrap retain full control over decisions and 100% equity.
Financial Discipline: Limited funds force startup founders to be resourceful and prioritize efficiency. Proven financial discipline and grit is a huge selling point for investors in the future.
Sustainable Growth: Bootstrapped startups have to quickly build a sustainable business model and start producing positive cash flow and profits. Without pressure from investors to meet aggressive growth targets, a bootstrapped startup can scale at a natural pace.
Stronger Customer Focus: Bootstrapped businesses can prioritize customer needs over investor demands. This allows founders to put more focus on the product because the only people they need to please are the customers.
More Flexibility: Without needing to balance the input and opinions of outside investors a founder can more easily pivot their product based on customer feedback.
Increased Valuation: Proven success while bootstrapping can often help a startup command a higher valuation when it does seek funding later.
What are the Cons of Bootstrapping?
While bootstrapping has its clear advantages, the idea of self-funding a startup is also often romanticized. Bootstrapping is hard work and comes with significant challenges such as:
Slower Growth: Having more limited resources means some opportunities may be missed simply because of lack of capital. Compared to competitors with external funding, bootstrapped startups may not be able to scale, invest in marketing, or expand operations as quickly.
Personal Risk: Founders who bootstrap use their own savings, credit, or personal loans to finance the business. If the startup fails, they could face financial hardship or debt because there is no cushion from investors to fall back on.
Lack of Advisory Support: Investors bring more than just money to the table. Investors with experience, connections and influence can open doors and provide valuable business advice.
Stress and Workload: Founders who bootstrap have to wear multiple hats and make every decision. Lack of funds can also make it harder to hire top talent, meaning more of the everyday work falls on founders.
The Benefits Funding Unlocks
For many startups, external funding unlocks resources that would be difficult to access through bootstrapping alone. Some of the major benefits include:
Faster Scaling: Startups with funding can hire talent, expand to new markets, and invest in infrastructure much more quickly.
Product Development: R&D and innovation become more achievable when there is capital for testing and production.
Networking and Mentorship: Investors can provide valuable introductions and strategic guidance.
Market Expansion: Accessing larger customer bases and scaling operations is easier when you have financial backing and investors’ strategic connections.
A Competitive Edge: In fast-moving markets, securing funding can give a startup an advantage over its slower-growing competitors.
The Drawbacks and Limitations of Funding
Accepting funding comes with challenges and trade-offs that founders should carefully consider:
Equity Dilution: Investors receive a portion of ownership in exchange for funds, reducing founders’ stake in the company.
Pressure to Grow: Venture-backed businesses are often expected to scale aggressively, and this can sometimes come at the cost of long-term stability.
Less Control: Investors can impose decisions on a startup that don’t align with the founder’s vision.
Exit Pressures: Investors eventually expect a return, and their desire to cash out may push the company toward an IPO or acquisition earlier than hoped.
What’s Right for Your Business?
The choice between bootstrapping and funding depends on multiple factors, including the nature of your business, growth goals, and personal tolerance for risk. Here are indicators that your startup is more likely to thrive through bootstrapping:
Full control of the company is important to you.
Your early-stage company doesn’t need a large injection of cash to grow.
Growth can be sustained without large upfront capital.
Your business model generates revenue early.
The target industry doesn’t require a big infrastructure investment.
If rapid scaling, research-intensive product development, or high market competition are factors for your startup, seeking funding may be a better choice for you.
When to Make the Jump from Bootstrapped to Funded
Many businesses begin as bootstrapped startups and pursue funding later, once they have gained traction. Signs that it may be time to seek investment include:
Customer demand is growing faster than your company can supply.
Growth has stalled because you can’t invest in expansion or product improvements.
Competitors with funding are gaining market share.
Your startup has demonstrated product-market fit and recurring revenue.
You have a clear vision of how you would use the money.
Ultimately, there is no one-size-fits-all answer to the question of whether bootstrapping is the most desirable way to start a business. Both bootstrapping and funding offer distinct advantages and challenges. Consider your top priorities, business model and personal strengths to make a well-informed decision and position your startup for success.
Think your company is ready to seek funding? We’ve got you covered: A Startup Guide to Funding: How to Find Investors
