Onset Ventures
You are starting a high-tech venture. Would you prefer to bootstrap your company or secure financing from an angel or venture capital fund (like Onset Ventures)? Using information from the readings assigned for today, explain your answer in terms of the pros and cons of each.
To answer this question satisfactorily, we need to first consider and weigh the advantages and disadvantages of each method of financing: bootstrapping, angel financing, or venture capital (VC) funding, followed by the investigating the needs the company that would justify the type of financing that it may require.
In bootstrapping, the key advantage is the company retains all of its own equity, and the founders maintaining full control of their venture. This empowers the founders to prioritize their finances, spending only on what is absolutely necessary to their operations, and at a rate that both the company and market can keep up. This also means that the company would be more sensitive to changes in the market and react accordingly to maximize its resources. The downside of bootstrapping is that it shifts the company’s focus from long-term to the short-term because the company has to quickly generate funds to keep the venture going. This has an enormous impact potential growth rate of the company. This disadvantage becomes more pronounced if the company is seeking a first mover advantage to corner the market in a new market segment and may not have enough funds to produce a product in time. The impact is even more significant if the market segment has large corporations competing as well.
The benefits of seeking angel financing and VC are the connections and mentorship that these financiers are able to provide you with. This is especially important for companies whose founders are first-time entrepreneurs. The rate of success of a company jumps from less than 25% to over 80% with the guidance of a non-management mentor who has run both a startup and a large business.
To answer this question satisfactorily, we need to first consider and weigh the advantages and disadvantages of each method of financing: bootstrapping, angel financing, or venture capital (VC) funding, followed by the investigating the needs the company that would justify the type of financing that it may require.
In bootstrapping, the key advantage is the company retains all of its own equity, and the founders maintaining full control of their venture. This empowers the founders to prioritize their finances, spending only on what is absolutely necessary to their operations, and at a rate that both the company and market can keep up. This also means that the company would be more sensitive to changes in the market and react accordingly to maximize its resources. The downside of bootstrapping is that it shifts the company’s focus from long-term to the short-term because the company has to quickly generate funds to keep the venture going. This has an enormous impact potential growth rate of the company. This disadvantage becomes more pronounced if the company is seeking a first mover advantage to corner the market in a new market segment and may not have enough funds to produce a product in time. The impact is even more significant if the market segment has large corporations competing as well.
The benefits of seeking angel financing and VC are the connections and mentorship that these financiers are able to provide you with. This is especially important for companies whose founders are first-time entrepreneurs. The rate of success of a company jumps from less than 25% to over 80% with the guidance of a non-management mentor who has run both a startup and a large business.