Convertible Notes and Startup Funding
February 12, 2025
Equity valuation is about guessing what the value of an organization is expected to be a decade from now or an even bigger time horizon. Obviously, the financial future, just like future in general is difficult to predict. However, in equity valuation, one cannot proceed further until some assumptions are made about the future. Every […]
In the previous article, we learned about the non-interest income at various commercial banks. We have also understood what these sources of non-interest income are and why they are preferred by many banks. It is true that there are several advantages to having sources of non-interest income. However, it is equally true that advantages are […]
Wall Street is very sensitive to communication. Every quarter, executives from top companies communicate their results to the street. Based on the content of this communication, the market reacts. Sometimes the market turns volatile. However, at other times the market remains stable. Apart from the content being communicated, the manner in which it is also […]
We are now aware of the various models that are used for equity valuation like Gordon model, H model, 2 stage model etc. in each of these models, we were assuming that the given inputs are dividend, dividend growth rates and time horizon, The output that we expected from these models was the current stock […]
Banking is perhaps the most regulated industry on the planet. The movement of funds in and out of the banking system is monitored by governments as well as regulators. However, competitive pressures force banks to undertake more risks and if possible earn a higher rate on their investments. This is what creates a parallel financial […]
In the previous article, we have learned about what self-financing i.e. bootstrapping is. We have also learned about what are the various advantages of using the bootstrapping technique.
However, despite the advantages listed in the previous article, relatively few startup founders actually go the bootstrapping route. This is because of the fact that bootstrapping also has some significant disadvantages.
The disadvantages of bootstrapping have been explained in the article below:
The problem with bootstrapping startups is that the company completely relies on the founder’s savings and borrowing capacity in order to function. Needless to say that such saving, as well as borrowing capacity, can be finite and quite limited. Hence it puts the company at a severe disadvantage. This is the reason that companies tend to resort to external financing instead of relying on bootstrapping to raise all the funds.
A lot of the time the survival of such companies comes into question because of the perennial resource shortage. Hence, using the bootstrapping route requires the founders to have precise plans in place. They should also be able to secure the services of the best advisors in order to ensure that their startup company has a better shot at survival.
The bottom line is that bootstrapping does have some significant advantages. However, it is not for everybody. Founders need to make a careful decision after considering all the pros and cons.
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