The fact that a lot of startups end up on this kind of trajectory is a big part of why I haven't sought seed funding for my current company. However, this has meant learning how to do sales, and suffering from a comparative lack of connections (and credibility) that come from investors.

Bootstrapping definitely has its upsides and downsides, but I assume that in ~12-24 months, if this recession (or whatever you want to call it) continues, a lot of venture funded companies may find the money drying up. VC firms are likely finding it harder to get money for new funds, and this will trickle down to a tightening in the startup ecosystem. Bootstrapped companies will likely be able to thrive by essentially feeding on their carcasses.

There may be a third way for startups that is actually better in this environment - doing a few rounds (seed through maybe series B-C) and then making it to reasonable levels of profitability, giving up ambitions of "eating the world" - but I'm not sure that most startups can achieve this. It seems to be a lot harder than either bootstrapping or taking funding to grow until you IPO (while still unprofitable).

For sure most fund raises are on the basis of hockey stick go big or go home. It’s a moonshot and if you get stuck in orbit and cannot escape the pull of gravity you’ll burn fuel until you re enter the atmosphere…usually breaking up in the process.

At which point your business might be sold at garage sale prices. Or restructured with the C suite removed in the process. It’s just brutal.

We bootstrapped over 15 years (not a typo) and for sure can survive the next two years without issue which I’m very thankful for.

I love your idea of trying to find a balance but investors will need to be much more patient than they have been historically. Most won’t wait a year or two for return which means they are fantastically short sighted.

Most VCs go in with a go-big-or-go-broke mentality. The entire calculation is to get a couple 10x-100x exits to offset all the failed attempts. Leveling off after a series C to "just" a profitable company makes business sense for the company and founders. But if you do that the series B and series C investors can't get their big exit, so they will do whatever they can to prevent that.

The best way out once you're in this deep is probably an IPO. The investors get their exit, and you're now "only" beholden to shareholders, who are more used to sustainable businesses that can survive decades or centuries.

After writing this, I realized that that is kind of how businesses used to work. You would take a few rounds of funding from friends, family, and eventually connections/PE firms before going public. The whole idea of IPO-ing after series F is the new, weird thing.

I don’t think receiving funding from VC’s has anything to do with regards as to how you manage your company e.g if you wish to be profitable from the start

Sure they can pressure you but especially at the preseed - series A they shouldn’t have any sort of operating control

you aren’t immune from these problems just because you aren’t taking VC funding.

Most bootstrapped companies need some initial funding which usually comes from the founders bank account, with the idea being that’s it.

But it can be tempting to accelerate your bootstrapped growth by taking debt financing (credit cards, mortgages and other personally guaranteed loans)

The difference is that in most of these cases you are personally liable whereas you can walk away from VC funded businesses.

Started my business with £20k of credit card debt. Would have sucked had it not worked out. Was a huge sigh of relief the day I was able to pay it off.

Bootstrapping is magnificent. I consider the Calendly funding story absolutely fantastic: under $1M in Seed + Debt and next round comes years mater, at 3.5B valuation.

I completely agree with your sentiment. I'm a bootstrapper at heart. However, I've dearly learned in the past few years that as a bootstrapper, one of the biggest dangers is believing that markets seem real, when in fact, they are only being buoyed by investor money and hype. This causes a mistaken belief that there are real, paying customers and the market is indeed growing and significant for new entrants when what's actually happening is the rapidly growing startups and even supposed customer-growth are supported by investor money, not by paying customers.

When a bootstrapper tries to come into the market and isn't playing the investor-led startup game, by trying to build a company through customer money vs. investor money, they see that there aren't nearly as many customers as they would need or expect, and when customers are paying, the hype-driven, investor-backed startups are eating up a significant portion of the customer base.

This is because customers, far and few between in those rapidly growing, hypey markets, tend to be "lazy" buyers and will not spend the time to do any sort of real evaluation or analysis of competition and markets. Rather, if they have a real need for the product, they will buy either from who they are already buying from, or if they will select a new vendor, it will be someone they can get support internally to purchase (if it's an enterprise), with such support being a combination of a who their existing suppliers or consulting firms recommend, influence from content marketing or shilled analyst reports (buying influence), whatever companies are gaining the most attention and marketing at that moment, and/or who their colleagues and peers are recommending, all of which is subject again to startup influence, and besides a bit of a self-perpetuating cycle since the more they get recommended, the more they get recommended. In any case, it’s never about who has the better product or service or who offers the most value for the money.

In addition, and ideally, if the product costs nothing or very little to acquire, that makes it even easier for those few customers to gain support for a new vendor and that perpetuates the cycle, or if the customers' existing suppliers include the product or features of that product for no additional cost in their existing or new offerings, that makes it harder for the vendor. In any case, the fact that others are giving away a product for free or low cost makes it near impossible to compete as a bootstrapper, since you can't afford to give a product away, even if the startup can.

If you're selling directly to consumers (or to small businesses, which act like consumers) and not to enterprises, then it's even harder as a bootstrapper, since customer acquisition cost and complexity is very difficult and expensive, and those who have the most marketing dollars combined with products they give away or practically give away will win. Bootstrappers almost always lose in those market conditions. Yes, there are definitely exceptions to all the above, but I am finding the rule generally holds.

All this makes bootstrapping particularly difficult in fast-growth, hypey markets, which is where startups tend to proliferate. Basically, bootstrapping in an investor-led startup's game is not a recipe for success, and probably a road to ruin. You might be able to bootstrap selling ancillary stuff on the sidelines of what's happening in the hype-driven market, mostly marketing content-driven stuff, events, webinars, selling traffic, training or education, but even that stuff will come and go, and we're not talking large exits either. You can also sell consulting or advisory services in those hype-driven markets, but you have to really enjoy the consulting or advisory game and you have to mostly have relationships and connections to sell that sort of thing. Ideally, as a bootstrapper, you can go from hype-cycle to hype-cycle and keep and grow your existing customers. You can also bootstrap real products (not services or marketing content) in more sedate markets, but you'll most definitely face entrenchment of incumbents who protect their customer base, and so making entry into the market as a bootstrapper just as difficult. The key is to know what game you're playing and the best way to win at it, if you want to succeed, especially without exhausting yourself in the process.

I know someone who is actually following a different "third way". Rather than raising a few small rounds with aims of profitability (no investor will be satisfied with that since investors are looking for asset value increase, not profitability), it's about raising some early rounds, growing and getting attention fast, and quick exiting. He has been able to crack this code by building small, fast-growing, investor-led startups, but only up to a certain level (usually up to Series B), and then finding a quick acquisition exit, before the music stops. Somehow he has figured out not only how to do the quick fundraise, growth, and attention building, but also how to develop relationships on the acquisition end of the exit. While these aren't billion-dollar exits, this approach seems to work and he has a stable of investors who know how to play that game for everyone's benefit. I haven't figured that out myself.