In any business, you often have to spend money to make money. By bootstrapping one can spend his own money or sell a part of his equity through equity funding to raise capital and start a business.
Starting a business requires knowledge and passion. Knowledge answers the ‘how to’ question of starting and running a business. Passion answers the ‘why to’ purpose of running a business. Knowledge is needed to understand the mechanics of a business. Passion is needed to let you use that knowledge gainfully while motivating you through success and failure. Entrepreneurship is the blend of both knowledge and passion in various degrees to be successful.
Finance shapes how a business is run. Let’s find out how both bootstrapping and equity funding can have profound impact on nearly every aspect of a business and its growth.
Bootstrapping
This idea, of course, isn’t new — if anything, it has been around since the start of entrepreneurship itself. Starting a business can be incredibly financially taxing on you and your family. Your personal finance is more important while starting a business. You will need to learn where and when to spend while bootstrapping to start a business.
Bootstrapping demands intense passion, focus, dedicated self-learning, take ownership of mistakes (and to bear their costs), and the self-criticism to learn from them. Here, as an entrepreneur you will learn skills needed to running a business and complexities associated with it.
Read and watch the explainer video on Investopedia, which explains What is Bootstrap.
This financing option demands a lot of time, intense analytical expertise and in-depth financial knowledge. The returns and risks are also in line with the input of your knowledge and passion. But, there is also a cost for those entrepreneurs who use bootstrapping but have still not reached sustainability or even ramen profitability.
Equity Funding
In equity funding, the investor puts in money in exchange for equity for a chosen time period of his/her choice which is usually of couple of years depending on the project. Such investors might actively participate in the decision making process of the business. The investor makes sure that they find their investments have grown multi-fold and the capital invested has become substantial during the course.
Unlike bootstrapping. Through equity funding, growth is being acquired quickly by raising capital through many ways of financing. Most of the capital raising involves dilution of equity, which results in less control and autonomy of an entrepreneur.
Equity funding can average and manage the risk of loss in investment to start a business. Businesses are getting funded based on their profit potential, objective, plan and strategy devised to run the business successfully. Finally, it’s important not to waste those precious seed dollars but it’s equally important to spend where necessary. Don’t skip out on things your company needs.
Between bootstrapping and equity funding. The mode of financing you choose plays a vital social and economic function that defines how you start and run a business successfully.
What did you choose bootstrapping or equity funding? Which financing helped you start a business? Share them on Trdinoo for others to learn and please share us with your friends and network.
