Bootstrapping :

Difference between bootstrapping and funding :

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  Bootstrapping

  Relies on personal resources, revenue, and creativity to grow the business.

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  Funding

  Involves securing external financial assistance, such as loans or investments, to fuel business growth and expansion.

Disadvantages of Bootstrap financing :

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  Limited resources

  A bootstrapped business may have limited financial resources compared to a funded one, potentially slowing growth.

• 

  Risk of failure

  Without outside investment, the business may lack the necessary resources to compete effectively or weather unexpected challenges.

• 

  Slow growth

  Bootstrapping can lead to slower growth as the company relies solely on its own revenue to fund expansion and development.

Pros and cons of bootstrapping :

Pros :

• 

  Control

  Bootstrapping gives founders full control over their business, allowing them to make decisions independently.

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  No debt

  With no outside funding, there's no debt to repay, reducing financial pressure.

• 

  Resourcefulness

  Entrepreneurs often become more resourceful and creative when bootstrapping, finding innovative ways to grow the business without large investments.

• 

  Resourcefulness

  Without external funding, businesses tend to operate more efficiently and cost-effectively, often leading to leaner operations.

Cons :

• 

  Limited growth

  Bootstrapping can limit the speed at which a business grows and expands, as it is dependent on internal resources and revenue.

• 

  No debt

  With no outside funding, there's no debt to repay, reducing financial pressure.

• 

  Resourcefulness

  Entrepreneurs often become more resourceful and creative when bootstrapping, finding innovative ways to grow the business without large investments.

• 

  Lean operations

  Without external funding, businesses tend to operate more efficiently and cost-effectively, often leading to leaner operations.

How to approach an angel investor:

1. Seed stage

In the seed stage, the founder invests their own capital, uses personal savings, or takes out a small loan to get the business off the ground.

2. Revenue stage

As the business starts to generate revenue, the founder reinvests profits back into the business to fund operations and growth.

3. Scale-up stage

Once the business has a solid foundation and is generating consistent revenue, it may reach a point where it can begin to scale up operations and potentially seek outside funding for further growth.

Lets Understand with an example:

Harsh has developed a new social media app and wants to launch it in the market. However, he doesn't have access to external funding or venture capital. Instead, he decides to bootstrap his startup. He invests his personal savings into developing the app and then launches it.

As the app gains traction and starts generating revenue, Harsh reinvests the profits back into the business. He continues to grow the business using his own resources and creativity. Eventually, the app becomes successful, and he decides to expand further by seeking external funding.

In this situation:

• 

  Harsh is bootstrapping:

  He is funding his business using his personal resources and revenue generated by the app.

• 

  Personal savings are the seed capital:

  Harsh's initial investment into the business.

• 

  Revenue generated by the app:

  This is the primary source of funding as the business grows.

• 

  External funding:

  In the future, he may seek outside funding to scale up operations further.
  
  Hope this was helpful! There's more to explore! Learn about Burn-Rate here.