In yesterday’s post I gave 5 reasons to bootstrap your business. Today I wanted to take a look at reasons why you might want to consider taking outside money.
1. The people on the VC team. This is probably the most important thing to consider when contemplating taking outside money…it’s more important than the actual money. What expertise do they bring to the table? Who can they introduce you to? What doors can they help open?
2. You need to expand more quickly than bootstrapping allows. It’s almost impossible to bootstrap your way into a nationwide (or global) product launch. It’s just too expensive.
3. You need to scale quickly. It would have been really difficult (perhaps impossible) to bootstrap facebook. The scale of infrastructure and development that was needed far outstripped facebook’s ability to generate revenue early on.
4. You’re building to be acquired (rather than to get cash flow positive). So you’ve invented an amazing new technology that will change the game for (insert your favorite big dot com here). In order to get enough market share to be noticed you need to offer your service for free and build a user base. That can be really expensive. If you can find VCs who believe in what you’re doing it makes sense to take their money so you can build your user base.
5. Venture capital leads to more venture capital. Once you’ve got outside investors in the game with you, they have every incentive to see you succeed. Don’t underestimate the importance of this. As they introduce you to other VCs you’ll reap the benefits above over and over again (especially number 1).