Convertible Notes and Startup Funding
February 12, 2025
In the previous article, we studied about the concept of sweeping. We are now aware that commercial banks provide their clients with the facility to sweep additional balances into a centralized account. However, we are also aware that such facilities are generally provided to corporations that use the commercial bank as their main or primary […]
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Option pools are synonymous with startups. Founders, investors, and employees expect the company to have some sort of option pool arrangement. It provides startup companies with some much-needed leverage required to compete with established companies in the labor market. However, a large number of entrepreneurs are not clear about what option pools are and how […]
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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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