How Bootstrapping is different from Angel Investment for start-ups

Photo by Danielle MacInnes, unsplash.com

It is a true fact that for every startup funding is the most important aspect. If you do not have proper funding plans you are going to suffer for sure. If you lack funding for some business even with the smallest margin that can also impact huge on your dreams and future plans. So, overall funding is crucial for every business to get a good start be it a small scale business, corporates or even larger enterprise-level organizations. If you have proper planning, promising strategy and long-term vision with the funding it is easy reach at great heights.

"Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do." --Steve Jobs, co-founder, chairman and CEO of Apple

Here, we are going to understand Bootstrapping and Angel Investment for start-up business and also what pros cons does it have if an individual opts-in for any one of them.

Angel Investment

“Angel Investment” term is used when you want to have funds from externals sources like investors. But why do one lend funds from investors? It’s interesting to know that angel investment funds is useful when you have an idea and want to convert that idea into a start-up but alone start-up cannot make it to successful business. So, you need a team, resources, and stakeholders by whose support you cannot reach to next level. In this investors become just like founders and have equal rights for the venture.

"Starting your own business is like riding a roller coaster. There are highs and lows and every turn you take is another twist. The lows are really low, but the highs can be really high. You have to be strong, keep your stomach tight, and ride along with the roller coaster that you started."--Lindsay Manseau, photographer and entrepreneur

Pros:

You need external support or investment to grow your start-up or idea.

When a highly credible investor is part of your start-up that adds up an extra mileage to your venture.

The growth rate is higher compared to other investment types.

You have access to huge level experience and skillsets.

Repayment of the funding is not a compulsion.

If you have more cash in hand, there are higher opportunity for start-up growth.

"I made a resolve then that I was going to amount to something if I could. And no hours, nor amount of labor, nor amount of money would deter me from giving the best that there was in me. And I have done that ever since, and I win by it. I know."--Harland Sanders, founder of KFC

Cons:

When talking about raising funds through the investors is a time-consuming process.

It is often seen in some cases of the founders that they do not want to have control over money and neglect outsider’s ownership turning their start-up down.

Angel investment may limit profits because you actually have to give equity share to the investment.

There are often misunderstandings observed between investors and founders ending-up a healthy relation for business growth.

You have to keep more on profits to give share to the investors then on business and products.

Bootstrapping

Bootstrapping your business or start-up is one of the most advised step by various industry experts. The reason being you have complete control and ownership of the start-up or firm and no external bodies is involved. Many times start-ups are advised that opting for angel investment is only necessary when you want to scale higher but if you are starting with something you should opt for bootstrapping where you invest your or friends/ family member’s money to get a decent start. In simple words, angel investment is only required when you want money but if you have capability to run a start-up for at least 2 years then it is advisable to begin with bootstrapping. This way you can your own boss and you have all the profits for yourself. You can even have higher options to do something new without asking to any of the investor.

Pros:

The founders have little money but they have total ownership over it.

Based on the funds available you can spend money decently wherever required.

You can happily concentrate on your business or products without thinking much about profit shares for others.

You have complete control over your idea and start-up.

The controlled funds help start-up to grow with lean and efficient manner which directly lays foundation for the future perspective.

When you want to sell your start-up business then most business profit share remain s with you rather than sharing much of it to the investors.

Cons:

It is often found that the founders funding their start-up self may have risk of getting into debt if the business fails or does not reach a certain level.

The start-up growth as seen in bootstrapping is comparatively slower because of less funding and founders have to work harder to reach at profit level.

If you come into new industry that has just started thinking to be a key player but there are chances that those start-ups having good funding may take over your position and steal the industry.

It’s really not easy for every start-up business bootstrapped. Some need proper funding to get going at minimum level.

You need start with the investing again from the profits gained.

Access to the resources and network is less compared to angel investment.

No measurable profit margin is maintained due to lack of funding.

Summary:

Summarizing bootstrapping and angel investing of the start-ups is the difference in their approach, planning and most importantly is requirements. Both of them come with benefits and disadvanteages. If you are looking for rapid growth, market domination, and extreme expansion you will have to opt for one or multiple investment rounds. If your goals is to maintain as much ownership as possible then you will pass on investments of any kind and try to bootstrap your business as far as possible.