Bootstrapping Your Startup: Do You Really Need Early Investment?

I've been thinking about this a lot, too. Is there any startup that inevitably needs early investment? Except for biotech or massive big data startups of course.

Because if your product does something new, you can ALWAYS get PR.

What I've seen is that with funding, founders don't focus on the essentials anymore. They are not as careful with whom to hire, they don' think as much about what marketing channels to spend money on. However, without funding, you are basically forced to focus on the very core of your startup, every decision needs to be very thoughtful and you will need to understand every process in your startup in-depth.

A friend of mine once said, funding should never be a lifeline, - it should be motivated by a fast expansion opportunity.

I suppose it depends on who you are. If you have a family and a mortgage, the answer may be yes.

Many investors are not very kind to founders with families and mortgages. YC itself is a horrible deal for anyone that's not a college dropout. Move out to SF for 3 months, leaving wife, kids, and property behind to fend for themselves, shack up in a tiny apartment with a co-founder, and get paid nothing for $20k and 5-7% of your company? That's alright man, pg can keep focusing on his college dropouts (of both sexes!).

Even more traditional investment arrangements put a great deal of focus on "equity compensation", i.e., only paying founders and employees the bare minimum for survival and "making up" the lacked payment with equity. Not a very realistic deal for an engineer with a family and mortgage who makes 120k-150k in the job market to take a startup gig for 60k (multiply numbers based on local cost of living).

The startup community is missing out on a lot of extremely useful experience and maturity with these cheapskate shenanigans. Of course, the investors are happy to lack this, because exploitation of naivety in founders is one of their primary mechanisms to maximize profit.

I've sought funding a few times myself and always backed out because I was getting offered a sucker's deal. Yes, it's much slower and much harder to bootstrap, but unless you're desperate, taking investment is not worth it, because investors are going to rake you over the coals. And that's the long and short of it.

A few months on a very low wage (that is what the $20k is for..), away from your friends and family, living in a tiny apartment is nothing compared to working on something you feel exceptionally passionate about.

Chances are you'll never find that problem. Most people don't. Those problems are rare, and solutions to them rarer still. But that's fine. If you have a business idea that you're keen on but don't want to give months away from your family or accept a huge drop in income for, bootstrapping is the right way to go. But that doesn't mean investment is always for chumps. For the few that do find a problem that they live to solve, making the tremendous sacrifices at the beginning is worth it, even if other people get rich off your efforts. Your friends, family, investors and humanity as a whole is better for it.

>> Is there any startup that inevitably needs early investment?

Yes.

In the UK, if you try to make a company which helps people travel overseas and arranges somewhere for them to stay then you are caught by all sorts of travel regulation. You'll need a £40K bond as well as all sorts of upfront costs just to get started.

So pre-traction you've had to spend huge amounts of money to enter the game.

Large regulatory costs are one of the ways big companies keep new entrants out.