Funding: How Long Should You Bootstrap Your Startup Technology Business?
How’s this for ironic: I’m an angel investor, but I’ve co-founded and sold two businesses that received no outside funding. Instead, my former business partner (Amy Katz) and I bootstrapped both of our businesses entirely from our respective family savings.
In our case, the bootstrapping strategy involved Nine Lines Media Inc. (launched in 2008 and sold to Penton Media in 2011) and After Nines Inc. (launched in 2014 and sold to CyberRisk Alliance in 2021).
What are the benefits of bootstrapping your technology business? The short answer involves control. As podcaster and author Guy Raz explains on page 53 of How I Built This:
“Having spoken to hundreds of brilliant entrepreneurs, I know that bootstrapping is more than simply using alternative sources of personal financing as a last resort. It’s also about keeping control of your business as long as you can. It’s about using other nonmonetary assets to solve problems that you would otherwise hire someone else to solve or throw money at — assets like your time, your effort, your network, and your own talent and ingenuity.”
Skim forward to page 61, and Raz quotes Ron Conway, the “Godfather of Silicon Valley”:
“Bootstrapping as long as you can is the best thing for the company because you own the entire company… Use your credit cards, do anything you can so that by the time you go to angels you have built a working prototype and have some users. You’ll likely be valued higher and will suffer less dilution.”
When to Shift From Bootstrapping to Outside Funding From Angel Investors
Generally speaking, Channel Angels agrees with that bootstrapping guidance. Check out our FAQ, and you’ll noice that Channel Angels typically invests in technology startups or tech-savvy businesses that have:
Partner-first sales models that leverage ISV, MSP, VAR and/or IT consulting engagements.
SaaS / recurring revenue-based financial models.
At least six months of revenue and/or six months of customer growth.
Note: We also consider pre-revenue investments based on additional factors such as market opportunity, intellectual property, leadership and more.
In other words, your company and product should generally be more than “vaporware” when you contact us for potential funding.
When Bootstrapping Works — And Doesn’t Work
In my case, Amy Katz and I never had to raise third-party funding to build the two IT media businesses that we ultimately sold to Penton Media (now Informa) and CyberRisk Alliance, respectively.
But keep in mind: Amy and I had complementary skills and similar financial values. Amy is a business builder who understands sales, finance, marketing and more. I’m a media platform builder who understands content, technology, and (some of) the Internet’s plumbing. At the same time, our respective families generally lived below our financial means — which allowed us to tap into personal savings for our business launches.
Our bootstrapping strategy worked well in the IT media market, where startup costs can be low — if you know the underlying technologies you’ll need to use and scale, and the target audiences/sponsors you need to engage.
The situation is far different in the software market and enterprise-class technology startups — where monthly burn rates can easily top $250,000 per month. Please keep in mind: The companies that Channel Angels funds generally have far smaller monthly burn rates, and a clear path to profitability.
Does Your Technology Startup Need Angel Investor Funding?
Still got questions about when to bootstrap your business — and when to pursue early stage funding? Feel free to email me: Joe@ChannelAngels.com. Thanks in advance your your inquiries.