WhoBuilt

Should Your Startup Bootstrap or Raise Venture Capital?

Feb 5, 2024· 14 min· 227K views·Watch on YouTube

Speakers

Y Combinator’s Michael and Elon discuss when startups should bootstrap and when venture capital may make sense, in a Y Combinator conversation.

Most businesses are not a fit for 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.

Bootstrapping can be a successful outcome

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.

Use VC when the business needs upfront capital

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.

VC is a business transaction with a return expectation

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.

Ignore outrage and engagement bait

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.

Takeaways

  • Choose bootstrapping if it can support the business and life you want.
  • Raise VC when the company needs substantial upfront capital and could plausibly return much more to investors.
  • A profitable software business can be successful without becoming venture-backed.
  • Treat a VC rejection as a possible mismatch with the fund’s return model, not necessarily as a judgment of you.
  • Evaluate investment examples on their merits instead of letting online outrage shape your funding plan.

Mentioned in this talk

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What was claimed 4

  • feature
    VC: Designed for investments that could return at least 100x, potentially 1,000x
    “the investment could be worth at least 100 times more, if not 1,000 times more”
    YouTube
    Unverified1 source· Talk
  • feature
    native module scaffolding: Can support a profitable software business that provides a good life without venture backing
    “If you make a great software product that lets you earn enough to live a good life, and it’s not VC-backed, you haven’t won. You won.”
    YouTube
    Unverified1 source· Talk
  • feature
    VC: Can provide substantial upfront funding when a business needs it
    “If you need money upfront and you’re building a software business, the venture capital industry can help you get that money upfront.”
    YouTube
    Unverified1 source· Talk
  • metric
    Google: The speakers say building Google would not have been mathematically feasible without raising money.
    “There’s no route they could have taken without raising money.”
    YouTube
    Unverified1 source· Talk

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