One of the downsides of the current tech startup boom is the obsession with investor funding, the race to be a billion dollar ‘unicorn’ like Uber or AirBnB obsesses most of us reporting on this space.
The paradox is while we gleefully report businesses raising hundreds of millions of dollars at ever increasing valuations, we’re also discussing how the cost of entering industries or launching new companies is collapsing, making it easier to launch a venture than every before.
Which leads us to good old fashioned ‘bootstrapping’ – funding a business’ growth out of sales.
A recent story I wrote on Sydney based HR tech company Expr3ss! reminded me of that where owner Carolyne Burns described how she financed her business initially through the sale of her house and has never taken a cent from investors over a decade of profitable operations.
Bootstrapping is the traditional way generations of business owners and entrepreneurs have funded their ventures and it’s only in recent years with the rise of the tech startup that venture capital or private equity has been seen as investment sources for most small businesses.
That rise of VC and PE investors though could be partly due to the banks stepping out of their role of financing small businesses as they’ve focused on financial engineering and funding speculators.
Also driving things in the last decade has been the flood of cheap money that’s washed across the world as governments and central bankers try to stave off deflation.
Many businesses needing money to fund capital investment or expansion have found it’s become harder to go to banks or traditional investors and that partly explains the rise of VC’s, Private Equity and the range of new online lender and crowdfunding platforms.
Venture Capital and investor money though never really comes cheap and having raised funds from investors, a founder or business owner’s job becomes as much about managing investor expectations as running the company.
For many business founders, the whole reason for starting their own company was to run their own show. So answering to a bunch of investors defeats the purpose of going on one’s own.
Carolyne Burns’ story is a reminder that the best, and cheapest, form of business financing is profitable sales. It’s something we should remember in an age that celebrates loss making companies dependent upon indulgent investors.