← The Foundr Podcast with Nathan Chan
The Foundr Podcast with Nathan Chan
612: (Solo) Funding vs Bootstrapping - The Real Tradeoffs EVERY Founders Needs To Know
00:12:05
Should you raise money or bootstrap your business? It’s one of the biggest questions every founder faces — and the wrong decision can shape the entire future of your company. In this episode, I share the lessons I’ve learned from speaking with hundreds of founders about funding, and what I’ve personally applied in building Foundr and my ecommerce brand, Healthish.
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- [00:02]
Nathan Chan
Hey, founder fam.
- [00:03]
Podcast Host or Sponsor Representative
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- [00:49]
Nathan Chan
Hey, guys, Nathan here. Welcome back to another episode of the Founder to Founder podcast. These are solo episodes where I share my learnings of building founder over the past decade. Today, I want to tackle one of the biggest questions that early stage entrepreneurs always ask. You know, should I raise funding for my business or should I bootstrap?
- [01:10]
Podcast Narrator or Intro Voice
Hear the stories, learn the proven methods, and accelerate your growth and future through entrepreneurship. Welcome to the founder podcast with Nathan Chan.
- [01:24]
Nathan Chan
Now, I get DMs about this constantly. People see shark tank deals where founders hand over, you know, 20, 30, 15, even upwards of 50% of their company just to get capital. And on the flip side, I also see these big bootstrapped success stories and people think, you know, maybe I should just do it alone. And the truth is, both paths work, but they come with very different trade offs around ownership, speed, pressure, control, vision, and the size of the opportunity of what you're building. And what I see at founder in our community is both can be painted in a great light, but there's pros and cons that need to be weighed up before you go any further. So I want to break it down because I never forget. Now I was speaking to one of my mentors, Mitch Harper, at the time, and he'd raised over like a hundred million dollars for his company, BigCommerce. And, and I never forget, I said, man, like, why did you raise like, so much money? And he said, well, Nathan, it was a billion dollar opportunity. And when you get your company funded, the obvious reason where it takes you is capital. It gives you speed, it gives you partners, it gives you access to network talent, resources that help you scale much faster instead of purely relying on cashflow. And as he said, it was a billion dollar opportunity. But there's A cost to that money. And it's not just financial. You're trading ownership. And with that ownership, you trade control. So when you bring on investors, you are no longer running your business for yourself. And you have a moral responsibility and obligation to get a return for your investors. You're building this business now to satisfy the people that own a piece of it. And there are going to be milestones. The timelines change, the pressure changes. But once again, I go back to what Mitch said. It was a billion dollar opportunity and it paid off. He listed that company on the Nasdaq and when it listed, I think he made half a billion dollars or something ridiculous, like crazy, maybe even more. And you know, he's one of the richest people in Australia now. So if he were to bootstrap alone, he wouldn't have got that outcome. Now, most founders really kind of underestimate how much pressure comes with outside money, because investors want growth, they want returns, they want speed. And this is why you see people on Shark Tank give up massive chunks of their business in exchange for a check. But for some founders, that is worth it. You need help, you need strategic help, you need capital to grow. But there's also trade offs. And I want to talk about these trade offs. You know, my next section, which is like the opposite strategy, is bootstrapping, where you keep ownership, you keep control, you grow at your own pace, you make decisions on what feels aligned. You're not driving the demand of getting a return for investor expectations. But I want to be clear, bootstrapping is not an easy route. It forces discipline, it forces profitability, it forces slow growth, and it forces you to really mindful of where every dollar you spend, it has to count. When you bootstrap, you build a different level of resilience because every dollar matters. And you build confidence because you're creating something real, not just burning investor dollars. But it depends on the size of the business opportunity, it depends on the competitive landscape. And it also depends like on the kind of business you're building. Like, sometimes you actually have to raise money. Guys like your business might be growing super fast, but at the same time, you know you need capital to fund that growth, right? You also might need help if you're a solo founder and you don't have expertise. Raising capital can be very, very powerful to get really, really super smart people involved that know how to scale your business. It's also a way to take some money off the table too, depending on where you're at in the journey, which I think can be really smart. For a founder. But I want to talk about what most founders don't realize about capital. Money amplifies what already exists. So if your product isn't validated, funding won't fix it. If your margins don't work now, funding won't fix it. If your offer is broken, your ads are broken, your brand isn't resonating, funding won't fix it. If you don't have product market fit and your company isn't already growing, capital isn't the solution. It's just an accelerant. And that's why I always tell founders inside the founder+community, prove demand, get product, market fit. Before you raise investors, they are investing in your business. They want to see the spreadsheets, right? It's all about the spreadsheets. It's going to be like if we put a million dollars into this business, we are going to 5x over the next five years or 5x over the next two years, or whatever it is. And even a handful of sales is better than a deck full of projections. So all of my friends that have raised money, all the successful founders that I've met that have raised money, and they've done it from a position of strength when the business is growing super fast, they have the negotiation power. Private equity or VCs are coming to them. And I want to tell you a really cool story. It's a story about a company called Toy Guru. They were once called the Netflix of toys and they were a subscription service where parents could rent new toys for their kids each month. And they went on Shark tank. They raised $250,000 from Mark Cuban and Kevin O'. Leary. Massive win, right? But here's the thing. It collapsed soon after. And the reasons why are super relevant. If you're weighing up, you know, whether you should fund your business and raise capital versus bootstrapping. First, their shipping model was a mess. So the toys were different shapes and sizes, which made free shipping a nightmare. Cost blew out fast. Second, they couldn't source toys cheaply enough to protect their margins. They'd hoped their investors would help them get in with big manufacturers like Mattel. That never happened. And the third, and this is the real kicker for me, the Shark Tank spike in customers actually hurt them because they couldn't meet demand. And it ended up burning out. And the founder later said they would have been better off just growing slowly, solving these problems step by step instead of jumping into hyper growth after TV exposure and funding. So what's the lesson here? Raising capital can't always be the Magic bullet. If you don't have strong unit economics, don't have strong operations, don't have strong alignment with your investors, more money just means a faster route to failure. Now there are other alternatives as well when it comes to raising capital without giving up control. In fact, these paths might be better for you like grants. You can get some incredible government grants in Australia, R and D tax incentives. You can get capital without repaying or dilution. There's some great innovation incentives that's here in Australia and I'm sure wherever you are, certain countries have these great incentives where you're based crowdfunding, you could do a pre sale or Kickstarter style. You know my friend Rob Ward who started company called Quadlock, I interviewed him, you can check that out. He's also an instructor on the Founder plus platform. He sold his company recently for half a billion dollars. That company started on Kickstarter. You could look it up. Crazy, right? You're validating your idea while getting some cash at the same time. Partnerships or strategic capital. Sometimes you know, a manufacturer or an influencer or a supplier may want to invest or you can co create with them. That can mean you can build alongside them but you get the strategic power which is an overlooked funding path. Or you can do you know, cash flow based financing or you know, lines of credit or loans. It's not the sexiest option but you're not giving up equity and you know it gives you time. You can scale still if you've already got product market fit. So you know when you think about this guys, when you're looking at raising money, you know when I built founder, I never raised money for both founder or healthish because I wanted to control my own destiny first and foremost. And also I wanted to be able to grow in a sustainable way. And starting founder. I didn't know what I was doing building healthish. I kind of knew what I was doing but still not and it was a lifestyle business. And these days I'm open, you know I'm open to raising money for founder but it'd have to be the right deal. But I've been building the business for 10 plus years so it really depends where you're at. So the five questions every founder should be asking before they raise money, Do I need funding to survive or scale? Is this a billion dollar opportunity? Am I looking for a fast exit or long term ownership? Do I have product market fit? And the final message I have for you guys is it might get annoying trying to make a call on this, but no one has the right answer. If you value speed, if you're in a competitive landscape and you need capital to grow then it might be the right fit. But if you value control you don't want to have all this pressure of building this company super fast. You might be building a cash flow based business not an asset based business. If you're tackling a huge market or you're not, you might value the creativity, the independence, the sustainable growth then bootstrapping might be a better path for you. But the most important thing is you make the decision from a position of strength and you're not making it where you have to do this from an emotional standpoint and you have the pressure to follow what everyone else is doing. Thank you so much for listening to this guys. I hope you found this valuable. If you are, write me a message, shoot me a DM on Instagram. I'd love to hear from you and I'll see you in another episode. All right, speak soon.