Should Your Startup Bootstrap or Raise Venture Capital?

Michael says most businesses should not raise VC, and investors generally seek companies that could return 100 times or more. He cautions that a business suited to Shark Tank is usually not the kind of company VC is designed to fund.

Elon and Michael reject the idea that either path is more moral or inherently better. Michael describes a friend whose software product brought in $30,000 to $50,000 a month and needed only seven to ten hours of maintenance monthly; he says that friend had built a successful life and business.

Michael says venture funding can help when a software company needs substantial money before it can break even. He uses Google as an example of a business that would have been difficult to build without funding for servers and other costs.

Michael explains that investors need a plausible path to a large return, such as an IPO, in exchange for their money. A rejection is not necessarily personal; it can mean the business does not fit that investment model.

Michael warns against using a conspicuous, seemingly foolish investment as proof that every business should be fundable. One bad investment does not change the underlying economics or make a different company a good fit for VC.