Venture capital has become one of the most popular sources of funding for Web3 startups, with dozens of leading funds looking to invest in groundbreaking blockchain innovators. These forward-thinking firms include legendary VCs like Andreessen Horowitz, via its dedicated crypto fund, and a host of entities that are laser-focused on the industry, such as Polygon Capital, Paradigm, DWF Labs and Digital Currency Group.
However, as any founder will tell you, there’s a major downside to VC funding. These investors are all after one thing – they want to see rapid growth and a quick return on their investment, and they’ll insist on being able to influence the startup’s business strategy in order to secure that. As a result, founders lose a great deal of control over the company they sweated blood and tears to create.
The alternative to VC capital is to go it alone and bootstrap your company instead. Bootstrapping refers to the process of financing a startup with your own capital, which might be your personal savings, your credit card, or some other assets. Doing so means taking on a significant financial risk, but there’s also a clear advantage in that you’ll be able to retain full control over the company, its direction and its operational strategy.
Benefits Of Bootstrapping
By retaining independence from VC investors, you’ll be able to maintain full financial control over your Web3 startup, which means you and your co-founders alone will make all of the decisions regarding your business model and how you intend to generate revenues.
This means having the flexibility to adapt your spending to suit your business goals in the best way you deem fit. The model can potentially also lead to much higher personal profits if the company goes on to be successful, as there’s no need to share them with investors or pay back any loans taken out. It also means you won’t be forced into a sale if someone steps in and tries to acquire your company down the road. You’ll have the freedom to choose how your company evolves, instead of focusing on the fastest-possible growth route, and allocate finances as you wish.
Full ownership and control
Because bootstrapping means retaining full ownership of your company, you retain complete control over every aspect of the business, from the initial idea, to choosing which products and services to offer, to your execution strategy, advertising plan and everything else. Founders can therefore move much faster than funded startups, as they’ll be able to make decisions faster without consulting other stakeholders, which can be hugely advantageous in a fast-moving Web3 industry.
You’ll also be in charge of your company’s policies and branding, meaning you’ll be able to stick to whatever principles and beliefs you hold regarding the way you do business. For those with high ethical standards, this is one of the major reasons to consider bootstrapping, as it means you won’t be forced into questionable business strategies that go against your beliefs.
Following an ethical business model can actually be one way to guarantee success. In the notoriously murky world of crypto market makers, there have emerged a number of bad apples that engage in shady strategies such as wash trading to try and pump the value of digital assets. Yet the self-funded market maker Kairon Labs uses this to its advantage, championing itself as an “ethical market maker” that’s laser-focused on generating liquidity for digital assets without engaging in any manipulation.
By using sophisticated algorithmic trading software and leveraging an alliance of hundreds of crypto exchange platforms, Kairon Labs has played a vital role in the health and growth of numerous digital assets over the years, while steadfastly refusing to engage in the more shadowy side of the market making business. Kairon Labs has been able to maintain this ethical stance because it was entirely self-funded by its founders. But it’s questionable if it would have been able to stick so rigidly to its principles had it accepted funding from outside investors, as it would have come intense pressure to pursue rapid growth, which could have led to some of those ethics being sidelined.
Control Over Your Business Model
Self-funded startups can potentially also become much more profitable in the long run, as founders have the ability to allocate whatever resources they have in a more strategic way to pursue long term growth.
This means being able to reinvest your business revenues without any restrictions from VCs, who may demand a share of them to ensure they get an immediate ROI on their investment. It also means being able to prioritize sustainability of the business and focus on longer-term growth opportunities, as opposed to an instant payoff or short-term gains. Self-funded businesses can also make rapid adjustments to their budgets based on the prevailing market conditions, meaning they can be much more agile in terms of being able to adapt their strategy.
Bootstrapping in Web3 can be easier for founders, thanks to the widespread availability of various grants offered by blockchain projects looking to expand their ecosystems. Founders may consider applying for a grant, or submitting their ideas to hackathons that can potentially lead to financial assistance.
Funding Isn’t Essential
Ultimately, most bootstrapped companies will want to build up a customer base in the fastest time possible to start bringing in some revenue. Yet paradoxically, they may also focus on growing slowly, bringing in new customers gradually so they have enough revenue to meet their business costs. This gives them more room to focus on their product’s features and customer satisfaction, which can be key to longer-term success. Conversely, investor-funded companies will find themselves under pressure to achieve much more rapid growth, so the VCs can make a profitable exit as soon as possible.
Founders who choose to go down the self-funding route will need to maintain strict financial discipline and keep a tight grip on cash flow to ensure they don’t go under during the early days of their business, but the resulting freedom they have to make all of the decisions can be beneficial. The strategy requires both innovation and resilience, and the ability to develop and grow a sustainable business model that delivers exceptional value to customers.
It’s not easy, but bootstrapping has paid off for thousands of entrepreneurs over the years, proving that business success isn’t always dependent on being able to secure a large investment. Indeed, it’s much more about being able to develop a viable product or service that can be delivered profitably, with the ability to grow and adapt in future, as the market evolves.