Over the years, we’ve considered raising money from VC, going public, or simply bootstrapping.  To be honest, the most frequent process we’ve started new companies has been bootstrapping.  In so doing, we maintained total control of the firms.  And, when we finally exceeded our ability to grow the firm (or in more than a few cases, proved our concept and no longer had the desire to run the firm), we’ve sold the entity to others.

To be honest, there are some pretty clear rules for doing this.  Assuming that you- like we- have no sugar daddies that can invest $ 50 million in a startup.  (OK, one of our partners could do this- but he never wanted to rely on his family.)

If your business entity is going to need $ 500K or less over the course of two or three years to reach your short-term goals, then bootstrapping usually makes sense.  After all, as you grow the business, you can obtain debt financing or even factor your invoices to obtain faster cash.  While these may cost operational profits, the degree of control you maintain over your firm- and the means you plan to achieve your goals- is, as they say, “priceless”.

You might even be able to crowdfund some of your capital needs, nowadays.  That avenue was not present back when we were starting companies (although we have recently helped a client or two jump from startup to next level using crowdfunding).

Raising money via going public (selling stock) requires a great deal of preparation.  As does obtaining venture capital.  Both require the standard dog and pony shows, various changes to business plans, and may consume six to 9 months that could better be spent growing the venture.  Unless, of course, those funds are necessary to cross the ‘barrier to entry’ threshold.

But, too many people raise funds because it’s the “report card” grade they seek.  By going public (which will require a vast amount of reporting to stay legal and safe) or raising venture capital, the founders feel they “made the grade”.  Of course, they may also have raised more than they need to satisfy the VC or underwriters, and now they end up with 5% control of the firm they started.

You shouldn’t forget that only 5% of all startup funding is garnered from VCs.  And, even if you are a high growth startup, you will be 1 of 16 who actually gets VC money.  And, until 2005, about 3/8 of all the firms that went public (via IPO [initial public offering]) did so after obtaining venture capital to start the entity.   (All these facts are from the Kauffman Foundation.)

Yet, there is a new possibility on the horizon.  Although, from what we see, this may only work if you operating in Northern California.

A new entity, indie.cv, has started invested in startups.  Bryce Roberts, a venture capitalist, started the concept.  Their initial play (startup investment) ranges from ¼ to 1 million dollars.  And, these funds do not require the founders to relinquish control of the firm.  But, if the founders do take the firm public or sell the venture, Indie.vc converts the investment into an ownership stake.

On the other hand, if the firm meets its goals and proceeds to grow, then Indie.vc gets reimbursed by snagging a portion of the founders’ salaries.  This lets the firm stay private, without pressure from investors who want to cash out.

Of course, there’s a price for this investment.  Indie.vc is expecting to get about a 5 fold return on its investment from the startup entity.   Which means a successful startup doesn’t have to travel to hypergrowth territory to make its way.

Now, where was Indie.vc back in the early 1980s when our medical startups could have used this concept?

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