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Basics Bootstrapping Benefits vs. Venture Capital

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As an entrepreneur, it is common to hear the word “bootstrapping” over and over again. While you may have a basic idea of what this means, do you truly understand the term?

Here is the definition of bootstrapping, courtesy of Investopedia:

“A situation in which an entrepreneur starts a company with little capital. An individual is said to be bootstrapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company. “

Rather than turn to outside funding, such as venture capital, you pull from personal resources to get up and running. Some may see this as a risk, but don’t make a final determination until you consider the top benefits of bootstrapping:

1.       Maintain control over 100 percent of your company. In today’s day and age, it is all the rage to secure funding from a venture capital firm. While there are times when this makes sense, it also means you are giving up some of your business in exchange for the cash. When you bootstrap, you will maintain total control of your business. This means one thing:  your vision is the only one that counts.

2.       No concerns regarding differing opinions. If you are the sole owner of your company, it is your right and responsibility to make each and every decision. When you accept outside capital, it will not be long before you are checking with others before making decisions. This can and will lead to disagreements from time to time. If you aren’t interested in the opinion of others at this point, it is best to bootstrap your business.

3.       You control the growth. Let’s put it this way: investors want your company to grow as quickly as possible, as this means they get their money back sooner rather than later. Are you uncomfortable with the thought of growing too fast? Bootstrapping allows you to control your growth, as you can make decisions, such as when to hire employees, based on cash flow.

Bootstrapping is not always the best decision, but the benefits above may have you saying no to venture capital in the near future.

Learn what’s right for your business

Visit SunTrust’s Small Business Best Practices Guide for a straightforward checklist of best practices in six important areas of financial management, including growing your business.

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