When I was born in the Soviet Union, nobody had credit cards or mortgages or even loans. If you wanted anything, be it a TV or a house or a car (yes, we had those, you jerks), you hoarded your rubles under your mattress. Many moons and a country later, when I started my first consulting company, I didn’t bother securing capital. I was sure that with my savings and a lot of hard work, I could build something profitable.
Bootstrapping has its perks, namely that you profit early or you close shop, and the matter is less likely to end in fisticuffs with screaming bill collectors. If you bootstrap, your business may become profitable. But, like mine, it is not very likely to become huge. That’s because you don’t have the money to take risks, to toss your product out into the market by developing rapidly, to hire skilled laborers or to market aggressively.
But there is a more subtle reason to seek investment capital for your startup, and it’s not the money. It’s the confirmation from seasoned businessmen that your idea is in fact a good one. In fact, thinking early about wooing investors boosts the chances of a project’s success in the first place.
Here’s an example. More than a year ago, I wanted to partake in a tech project, pro bono or not, whose focus was environmental sustainability. A pair of entrepreneurs I knew were starting a fairly creative new project in that vein. But I soon got suspicious. Were they securing investment capital? No. Were they offering shares in the company? They hadn’t worked that out yet. Were they, at the very least, investing their life savings in the project?? “Well… we’re looking for a developer who doesn’t charge too much. We don’t want to spend a lot on development.” I frowned. If you don’t believe enough in your project to invest your own money, let alone ask other people for theirs, then what is your idea really worth? Sure enough, their project did not come to fruition, perhaps because it was a bad idea after all, or perhaps because they simple were not driven by the need to please a third party. At the same time, I joined the co-founders of evolvist.com, whose board members were willing to invest good chunks of their savings to hire top-notch Web 2.0 developers, and whose first words to me included, “Our plan to secure investment capital is…”. And you bet we had meeting after meeting to discuss what users, and, in turn, investors, would like.
The point is, if an investor is willing to put his money where your mouth is, you might* just have a good thing going.
*Obviously investors often lose money on unsuccessful companies. But a really super awful idea is less likely to get capital than a reasonable one.