The reality of building a successful start-up is much more complicated than you think. Businesses don’t bloom into billion-shilling companies without a significant amount of capital. And raising money comes with a thorny question for start-ups.
What might the venture have to sacrifice to obtain the funding to fuel growth?
Giving up equity too early in the life cycle of a company can be extremely expensive. But starving a company of funding out of a fear of giving away too much ownership can hamstring its potential.
Self-funding can limit growth
Bootstrapping a company to its full potential is a lofty goal, but it’s almost always unattainable. Businesses simply need capital to fund their growth. And most savvy business owners realize that without outside capital, they will never grow their company to its true potential.
Entrepreneurs should always have a trusted advisor or CFO who can see ahead and make decisions proactively rather than reactively.
If you’re considering self-financing a company, think about the downsides before committing to this approach: Will it impede growth, restrict your market share or lead to a cash crunch?
Self-financed companies can find themselves in an unenviable position possible, running out of cash and desperate for financing. This can lead to a complete loss of leverage at the negotiating table with banks, venture capitalists or private equity groups.
When entrepreneurs lose cash flow, they give up leverage and negotiating power and risk losing too much ownership in a desperate attempt to raise funding