Being a start-up, there are a lot of worries clouding one’s progress. At times, it boils down to the fact that the company does not have enough finances to incubate. In those difficult times, should one knock on the doors of friends and relatives or ask angel investors for funds.
When a start-up depends on friends and relatives, its founders and co-founders enjoy their freedom to function. Senseforth CEO and co-founder Shridhar Marri, who founded the company in 2012 says, “We have bootstrapped, so far. We wanted to use our personal finances to build Senseforth in the first 3-4 years. Our conviction is that if you want to build something really valuable, you should bootstrap for the first few years. It also increases your leverage later on. But now that we want to scale to other geographies and verticals, we will explore funding for that.”
Despite having raised USD $150,000, FTCash’s co-founder Vaibhav Lodha testifies for both sides. He believes venture capital-backed (VC) funding depends on the business model and the personal appetite for it. Lodha added, “If you want your business to scale up really really fast, then you require some funds (from VCs). In some business like a B2B model, you can bootstrap for some time.” 2015-founded FTCash started with a budget of Rs. 50 lakh. Commenting about bootstrapping, Lodha says, “Bootstrapping is not very glorified. Even though, it is a very good thing to do in general. Eventually, you have lot of liberty at your hand and it is very good.”
Yet another start-up that is following a bootstrap approach is ShopR360 which is operated by Apertura Data Tech Pvt Ltd. ShopR360, founder and COO, Pranav Bhruguwar said, “For operations in India, we have low burn and should be cash positive by Q3 this year. However, we have a differentiated technology for markets across the globe. Hence, we will need funds to expand our business oversees in near future.”
The advantage of being backed by VC is that the company gets fair amount of coverage in the market. It further helps it to build their contact and that experience helps in skill management. Adding to it, Lodha said, “Sometimes, you end up making fewer mistakes compared to bootstrapped start-ups.” Currently, FTCash is preparing for its next round of funding but it will not take place immediately.
Marri opined, “It is a great breather for a bootstrapped start-up. We have set an ambitious goal of growing 10 times in the next year.” Marri’s company is into creating new customer experiences while radically reducing support costs built on artificial intelligence. Senseforth which is providing its services in telecom, banking, e-commerce and travel sector, hopes to extend to healthcare and retail.
ShopR360, which helps retailers understand shopper behaviour in-store, is planning to expand in South East Asia, Middle East and China. On the other hand, FTCash which aims to empower micro-merchants, small businesses and retail chains with the power of mobile payments, is adamant on sticking around in Maharashtra. It wants to exhaust the potential of Mumbai, and then think about expanding to other cities. Through this method, it is hopeful that it will not exhaust its funds.
Usually, when start-ups are backed by VCs, some of them take an aggressive route by spending heavily on marketing. Lodha added, “We have zero percent marketing budget.” FTCash was adamant on not taking the marketing route, as it does not want to burn up its funds quickly. It would rather spend its resources to reach its target of 1 million by five years.
Companies like Facebook, Dell computers, Apple Inc, Cisco system and many others, were bootstrapped enterprises in their initial days. In an article written in 2014 by John Mullins – an associate professor of marketing and entrepreneurship at London Business School, he stated that VC funding could be bad for start-ups. However, at times some start-ups understand the risk and hence, take a midway while facing bootstrapping or VC backing dilemma. The midway to the dilemma is initially following bootstrapping approach and then moving to VC backing when funds are exhausted.