In our first video of the Startup 101 series, we explain what bootstrapping a startup really means, what is a bootstrapped startup, how a bootstrapped startup is different from a funded startup, and what are the pros and cons of a bootstrapping a startup.

00:00 Introduction
00:33 What is bootstrapping
01:28 Pros of bootstrapping
03:00 Cons of bootstrapping

What is bootstrapping?

Any startup or a company that starts up and grows without any external funding is called a bootstrapped startup. Now, bootstrapping a startup doesn’t mean that a startup doesn’t raise any funds. In fact, a bootstrapped startup could either be self-funded by its founders and the founding team or it could be completely non-funded. However, these startups don’t raise funds from external sources like VCs.

Pros of bootstrapping a startup

Total Control: Since a bootstrapped company hasn’t raised any external funding, it means that the founders have total control of their startup and they have the right to take any decision in regards to the day to day operations and vision of their startup. However, a company that continues to raise external funding for its growth ends up diluting control and the founders could end up losing control of their own company to the investors. Take the example of India’s digital payments unicorn Paytm. Vijay Shekhar Sharma, the founder and CEO of Paytm, owns less than 15% of Paytm. However, Sridhar Vembu, who is the founder of Zoho, a bootstrapped company, owns around 88% of the company along with his family.

Business Sense: A founder of a bootstrapped startup usually stays focused on unit economics and thinks about revenues and profitability of the business. Considering it is a bootstrapped company, profits are what will enable the company to grow and in turn help it scale. In the end, a bootstrapped company would end up with a better and sustainable business. As for VC funded startups, these startups generally tend to focus on rapidly scaling their business and growing at 5X or 10X speeds without focusing on profitability or a business model that will help in creating a sustainable business. Take the example of Indian unicorns like Paytm and OYO. Both startups have massive revenues but also equally massive losses.

Cons of bootstrapping

Slow Growth: With the lack of funds, bootstrapped startups need to depend on revenues and profits generated to scale their business. Now unlike VC funded startups that have access to easy capital, bootstrapped startups cannot grow as rapidly as their counterparts and have to contend with slow growth in their early years until they build up enough cash and profits to unlock rapid growth.

Lack of Networking: Another important con of bootstrapping is that the founders can only depend on their limited network to grow their business and have to build new connections from the start. Unlike VC funded companies that have a network of VCs who not only have years of wisdom but can help hundreds of their portfolio companies to connect with each other and enable them to find synergies and unlock growth much quicker.

Music: Infraction - Corporate Business Music [ Ссылка ]

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