Bootstrapping refers to the act of starting a company without seeking external funds; on the other hand, we seek funds from investors like venture Capitalists to invest money in the form of equity exchange, debt financing, convertible debt, hiring more people, increasing inventory, and investing in promotion and growth. When do I decide on bootstrapping or funding? There are many bootstrapped startups in India who have innovative ideas based on food, software, dating, shopping, etc. Their strategies are perfectly created to match the demand. Fushion charts is a successful bootstrap startup that began in 2003. With various software like Java, SVG, etc., it was able to create compact, interactive, and easily understood charts. It has ten million users and is spread across 18 countries. Nadhani developed the products and used the company’s funds for its expansion. Zoho is a web-based business tool that was founded in 1996 by Sridhar Vembu and Tony Thomas, who began doing sales on their own and focused on new products until new contracts were initiated and sales began to exceed one million. We have other such firms like Zerodhar, 42 Gears, etc. Bootstrapping a start-up starts with a self-sustaining business and grows it by using limited resources and self-owned money. The bootstrap helps to return their own equity.
Bootstrapping can be used if the priority is towards stable businesses such as tech-oriented, quick, and embrace new trends, so it is certainly better to bootstrap the business rather than waiting for capital from investors. Pushing the business towards a project, goal, or milestone in bootstrapping leaves the decision to the business. Zoho made its financial results public for FY 2022. It is a huge profit with revenue of 6711 Cr and growth of 28%. If we analyse Zoho’s startup business CRM, its offers are more affordable without being expensive with the distribution network. They educate and solve the problem among small businesses and startups. The revenue streamed through the annual contract.
Let us compare firms based on bootstrapping and funding. Zoho vs. Upstox: Both are stock brokerage markets. In 2015, both companies introduced brokerage fees of Rs 20 per trade. Upstox was funded with huge investments of $29M, and Zerodha was completely bootstrapped from zero to $1B. For the fiscal year 2021, Zerodha’s revenue was 2729 crores, with profits of 1122 crores. The revenue for Upstox was 386 CR, with a loss of 72 CR and 10 million users. With their long-term vision and smaller user base, Zerodha opts for a more steady and sustainable path. Choosing the path of funding for a startup does not mean it is successful; nobody knows what is left out. Companies that have received successful funding include Facebook, Google, and others.
Merits & Demerits:
- Flexible Timelines
- More ability to pivot
- Fewer Resources
- May not be able to sustain in the competitive market
Merits & Demerits:
- More Resources
- Faster Growth
- Able to Survive in Competitive market
- Rigid Timelines
- Less ability to Pivot
Both bootstrapping and funding have advantages depending on the strategies and funding sought.It depends on the situation and goal. From a financial perspective, funding comes with great risks, a fixed horizon, and an exit from the market. While bootstrapping makes things harder, growth is slow and has the advantage of making the firm spend less in the long run.
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