Raising Money for a Start up – Bootstrap or Crowdfund

Raising Money for a Start up – Bootstrap or Crowdfund

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Starting a business and seeing it grow and prosper to make a maximum profit is an item on many entrepreneurs’ wish-list. As an entrepreneur, you come up with a strong business idea and have a great passion for getting your infant business at brisk and spearheading a successful business. Unfortunately, you need some dollars to move the idea from a piece of paper to a successful business.  Capital is a stumbling block and usually the biggest hurdle for most entrepreneurs.  Countless start-ups have started and failed or stuck at taking things to the next level due to inadequate funds.

For this reason, when starting a business, you need to have a detailed roadmap and a decent runway to capital. Previously, new technologies and business approaches have helped move many start-ups through the roof. However, the traditional ventures are not suited up to help you run a start-up in the current competitive world. Luckily, there are new options to help you raise money for your start-up and avoid falling victim to running out of cash. Crowdfunding and bootstrap are some of the methods that have been used to get money for a start-up. They provide opportunities for you to not only get funds but also create a first impression among your investors.

So, what is bootstrap and crowdfunding and how are they important to your start-up?

Bootstrap

What is bootstrapping

Bootstrapping is the idea of starting and building your business by relying on the little funds that you have. In a gist, bootstrapping is building something from nothing. The process involves burning the midnight oil, working on weekends and holidays and any other free time to ensure that the business is continually growing. Bootstrapping is, in fact, one of the most used ways by most entrepreneurs to self-fund their way to a successful business. However, while there are many bootstrapping techniques, each entrepreneur uses a different technique depending on their business.

When using bootstrapping, you could get the resources and cash that you own. This could be from your credit cards, bank account, and home equity loans or by selling other assets that you own. It is recommendable to use more personal assets when bootstrapping as this will increase the worth of your stake during the infancy stage of the business.

Merits of bootstrapping

  • Specialize in making money and not spending it

The whole idea behind bootstrapping is to have a business that will immediately give funds. For this reason, as the owner, you tend to focus more on how to make more money and not how to use it. Additionally, you learn to appreciate your hard-worked-for money. With bootstrap, you save a lot of time that is spent fund-raising. This way, you spend more time building your business and less time funding it.

  • Helps you remember that ascents come before descents

When bootstrapping, there is no significant cash reserve. Thought this is stressful and could lead to descents in the business, there is no fear since descents are always followed by ascents. With more experience, you learn how to soften the road and make the descents less challenging and risky for the business.

  • Could have superior products with lower budgets

With bootstrapping, your customers help you improve your product by paying their bills. Being the most critical source of funding, your customers become your priority. You will use their feedback to make products that will meet their needs. This way, you will end up creating some superior products.

Demerits of bootstraps

  • Personal risk

When using your own money and assets to run a business, you are at high financial risk in case the business fails.

  • Slow growth

Bootstrapping means that you have limited resources and few staff if any. For this reason, the overall growth of the business from one step to another will be minimal.

Bootstrapping forces your start-up to be accountable, careful and resourceful. Additionally, it keeps you on your toes to build customer loyalty and earn money to fund the business. Consider the pros and cons of bootstrapping above and see how effective it will be to your business.

Crowdfunding

Crowdfunding is the process of collecting small capital from several investors and later using it to fund a business, project or cause. The method is closely connected to social media since most people use sites such as LinkedIn or Facebook to pass the message. This way, you can collect massive amounts of money in just a short time. Some of the stakeholders in crowdfunding include

  • The investors giving the cash
  • The individual seeking funds
  • The website joining the investors and entrepreneur

How crowdfunding works

Crowdfunding has different forms to meet the needs of different businesses. For instance, there is donation crowdfunding where investors give funds without expecting anything in return. Additionally, there is equity crowdfunding where an investor gives funds and in return becomes part of the business. There is also peer-to-peer crowdfunding where the investor is compensated once the business is up and running.

 

Pros of crowdfunding

  • Serves as a marketing tool

With an active crowdfunding campaign, you have a direct way to introduce your venture to the market and reach numerous people. This way, you get to reach out to unique users and potential customers.

  • It reduces start-up risks

Funding is one of the major drawbacks for start-ups. With crowdfunding, however, you receive adequate money from investors to fund your business. This way, you keep your start-up at bay from most financial risks.

  • Tracking your progress

Through crowdfunding, it is possible for your investors to monitor your start-up progress. This way, they can promote your business through their networks.

Cons

  • One may steal your business content through crowdfunding in case you have not protected the idea with copyright or patent
  • You may end up giving away so much from the business as gifts to investors.

Conclusion

Capital has become a nightmare for most entrepreneurs in the market today. Many great business ideas have remained as ideas due to inadequate funds to make them actual business projects. It is possible, however, to use some of the current start-up funding methods to move your plan to reality. Consider the information above to know the differences between crowdfunding and bootstrap and pick the best method to run your business from a start-up to a successful venture. Although it’s never easy starting a business however you can find us at Enterprise Assurance PAC to help you with your start-up because we have a team of experts and professionals that can lend a helping hand to you. So, hurry up! Find us at Enterprise Assurance PAC and transform your dream into reality.

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