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RTC #14: VC money or bootstrapping?

RTC #14: VC money or bootstrapping?

Plus: 10 must-have Excel skills everyone should know

Stephan Freudl
March 19, 2024

👋 Welcome to ‘Road-To-Capital’ your weekly companion on startup financing, venture capital, and private equity. In this newsletter, I cover everything on the diverse methods and opportunities available to companies across their life cycle to raise capital and fund their growth. Follow me along for weekly deep dives, and expert insights, and to stay ahead with the latest headlines and tools.

Why today’s issue is valuable to you 💎

Headlines: 10 must-have Excel skills, 10 slides you need in your pitch to investors, Leonardo DiCaprio as your next investor, the venture debt market is coming back, and more!
Today’s Deep Dive: VC money or bootstrapping. I tell you what is right for you and your startup and why so many discussions and posts on LinkedIn are misleading. Guess now how many startups are financed by VC money (and be surprised later)
VC/Startup Event Season is On: All the dates you need to know

(Super)Analyst asks: Are you raising capital or planning to raise this year? 💰

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Initial filters: Geography, Industry and Vertical
Preferences: Stage, Check Size, Other (leading vs Co-investment, the revenue required, etc.)
Approach Details: Latest transaction activities or news, contact details, conferences they attended, etc.

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Headlines 📢

My favorite newsletters (at the moment) 📰
- ai for normal people (ai made simple)
- Unicorner (2 min rundown of an up-and-coming startup)
- New Zapiens (5 mins to 100 healthy years)

Here are the only 10 slides you need in your pitch deck
Looking for a business angel? Leonardo DiCaprio could be an option
Apple is in talks to let Google Gemini power iPhone AI features
State of the Venture Market: A Comprehensive Overview
The venture debt market is coming back, but not for everyone
Benchmarks for startup valuations 🏷️
- Median valuations of early-stage startups (AngelList)
- Median valuations & dilutions from seed to growth (Carta)
- Funding benchmarks from pre-seed to Series A (Founder Institute)
10 must-have Excel skills everyone should know

Last word to Index Ventures: After two quiet years for new investments, January and February were among the busiest of the last 14 years (!)

🤿 Deep Dive: VC money or bootstrapping?

A few weeks ago we had discussed the VC power law and what typical characteristics startups and their markets need to have to align with it.

For a quick recap of those, see below:

RTC #11: The VC power law - great is not enough

In short, there is a certain framework that venture capital looks for when selecting investments.

This tells us at least two things:

There are business cases that DO fit into this framework
And there are business cases that DO NOT fit into this framework

Business cases that DO fit are startups that actually need money upfront and this is where venture capital comes in. There aren't many other good mechanisms or financing options for such cases when you need millions of dollars to get your company to break even or even to the first revenues.

Venture capital invests in these cases as they see the potential that the investment could be worth at least 100 times more if not a thousand times more (or it turns out to be 0 in many cases) - and here again, do not forget: if the business case does not offer the potential to exit with such a multiple, it is not a VC case.

Most famous example: Google

Do you think Google would have worked out bootstrapped?

(Guess who was the business angel that invested alongside Sequoia and Kleiner Perkins? Hint: he also invested in Lyft, Vitamin Water and Ring. Find out here)

So far so good.

The reason for bringing this up is that I've come across several posts and discussions on LinkedIn over the last weeks that give a slightly different impression on the factors influencing whether startups should raise VC capital or bootstrap.

They argue that it is a decision between two options the founder can decide depending on his/her views on how to run a company

how fast or not so fast he/she wants to grow
how much equity he/she wants to keep
if you want to be your own boss and make your own schedule
lifestyle over revenues and more freedom for your employees

And that in the end, the (financial) outcome will be the same, just the journey would have been a different one….

And this is NOT true…

The answer to whether you should bootstrap your startup, or raise VC money completely depends on your business model and the size and growth rate of the market you are in

If it's a high-growth (70%+ cagr /yr) market with a huge potential, then you need to raise money out of necessity to ensure you have the resources to deliver on the product and take it to market versus your competition
If it’s a low-growth market or a market not big enough, then it may be better for founders to bootstrap or find another financing source. Most VCs won't support such business cases, unless there's a clear path to expansion, anyways (they might have done in 2021/2022).

And keep in mind: if a VC states that the market is too small, it doesn't necessarily mean anything, particularly that you cannot build a large and highly successful company😊

One final note: being on Twitter/X or LinkedIn might give one the impression that VC funding is the primary source of financing for startups (particularly during the boom times of 2021 and 2022).

Never forget: Venture capital financing is the big exception

Venture capital financing is the exception, not the norm, among start-ups. Historically, only a tiny percentage (fewer than 1%) of U.S. companies have raised capital from VCs.

Harvard Business Review

📖 Infographic of the week

Often the best way to solve a problem is to consider what actions will guarantee failure - and then do the opposite.

Source: Colby Kultgen

📅 Calendar of main VC events in the upcoming weeks

👉 Networks and relationships are key: start building them

👉 Get the full list of events in 2024 here

This was it for today.

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Thank you (!) and see you next Tuesday,
Stephan 👋

Issue #14 | 19 March 2024

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