I think startups die because they are pressured to spend a dollar or more for every dollar that comes in.
Bootstrapped businesses are forced to retain cash for a rainy day. It is anti-fragile vs the fragile nature of a negative/break even cash flow business that depends on a steady stream of investors who introduce other investors who introduce other investors. It's built on ego and not on fundamentals and humans are fallible.
These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate. No equity, no control traded for a 3rd party who's sole interest is ROI.
I've personally seen bootstrapped businesses that had healthy MRRs rapidly transform into a race to zero or negative cashflow. When I questioned the robustness, I was told by a software engineer angrily I didn't know what I was talking about and that perhaps my economic degree wasn't any use lol. I don't think he's equity is worth anything now but the whole scenario reminded me of the Horse in Animal Farm.
The fake it till you get bought out by a giant is a lottery. Don't trade your life for one.
> These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate
Heavily depends on the business. Banks absolutely hate to lend to businesses with few or no assets. It's not enough to just be able to cover the payments because of your MRR. The bank wants something to seize if you implode. For the bank it's a simple calculation: how do we get our money back, if your business turns south?
If you're an asset-light Internet company, SaaS, etc., you are not easily getting a bank loan just because you can meet the loan payments. It'll be almost impossible to get a traditional bank loan in fact.
> Banks absolutely hate to lend to businesses with few or no assets
Pretty much! My tech startup couldn't raise funding, morphed into a consulting business, and couldn't borrow money. We had to grow entirely out of cash flow, which was both liberating and terrifying. The only credit available to us was personal credit cards. We might have been able to get approved for a small line of credit, but it wouldn't have been large enough to make a difference, depending on it would have been risky.
A few thoughts on trying to cash when you're bootstrapping:
- if you've got personal assets & a willingness to put them up as collateral, you can do that
- you can borrow against accounts receivable, so if you're always sitting on $100,000 worth of A/R, a bank might lend you some percentage of that amount
- having someone on your team develop a relationship with a regional bank can help, because although they can't offer you any sort on liberal financing, they can tell you what you need to do to get it eventually (unlike a mega-bank, which usually doesn't have much of an imagination when it comes to offering you financial products to choose from
My personal credit was not optimal, I had no personal assets to speak of, and the business was too new/unstable to pitch a good "lend moneyz pleez!" story. Traditional lending channels were not available to me. I'm sure someone somewhere would have floated a loan, but I eventually chose to just work harder. Eventually trying to raise money seemed like more work than earning it.
Bootstrapped businesses are forced to retain cash for a rainy day. It is anti-fragile vs the fragile nature of a negative/break even cash flow business that depends on a steady stream of investors who introduce other investors who introduce other investors. It's built on ego and not on fundamentals and humans are fallible.
These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate. No equity, no control traded for a 3rd party who's sole interest is ROI.
I've personally seen bootstrapped businesses that had healthy MRRs rapidly transform into a race to zero or negative cashflow. When I questioned the robustness, I was told by a software engineer angrily I didn't know what I was talking about and that perhaps my economic degree wasn't any use lol. I don't think he's equity is worth anything now but the whole scenario reminded me of the Horse in Animal Farm.
The fake it till you get bought out by a giant is a lottery. Don't trade your life for one.
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