Bootstrapping or venture capital: which to choose
Every founder, sooner or later, faces the same question: grow under your own steam (bootstrapping) or raise risk capital (venture capital)? There is no answer that is right in absolute terms. There is an answer that is consistent with the type of business, with the speed of the market and with what you want your company to become. The two paths lead to profoundly different companies.
Bootstrapping: growing with revenues
Bootstrapping means financing growth with the cash flows generated by customers and with any equity from the founders.
Advantages:
- You keep control: no dilution, no veto rights, you decide.
- Discipline: without external capital you are forced to validate the model early and to keep costs under control. Many solid companies are born this way.
- The whole pie is yours: at exit, or in the distribution of profits, you share with no one.
Limits:
- Speed: you grow at the pace that revenues allow. In “winner takes most” markets that may not be enough.
- Personal risk: founders often put in their own capital or underpay themselves for years.
- Heavy investments: if the product requires long R&D or strong initial capital, self-financing cannot cope.
Venture capital: buying speed with equity
VC gives you capital in exchange for shares and, in effect, commits you to building a high-growth company oriented towards an exit (sale or listing) within a defined horizon.
Advantages:
- Capital to scale: you can invest in team, product and go-to-market before being profitable.
- Network and expertise: a good investor brings customers, talent and credibility.
- Subsequent rounds: closing a serious round makes the following ones easier.
Costs:
- Dilution and control: you give up shares and accept governance clauses (board, veto rights, liquidation preference).
- Pressure on growth: the VC model works on a few companies that grow enormously. You need a very large market.
- Potential misalignment: a business that grows 20% a year can be excellent for you and disappointing for a fund.
How to choose: three questions
- How big is the market? VC makes sense only if the opportunity is enormous and the win is rapid.
- How much capital is needed before revenues? If you can generate cash early, bootstrapping is often more convenient.
- What do you want? A company you control and that distributes profits is as legitimate a goal as an exit worth hundreds of millions. The two paths are not equally compatible.
Many success stories are hybrid: bootstrapping up to a proven product-market fit, then a round to accelerate, negotiated from a position of strength (traction and revenues improve the valuation and reduce dilution).
The Swiss framing
In Switzerland, both paths coexist well with the form of the AG or the GmbH. On the bootstrapping front, remember the thresholds that kick in with growth: VAT liability from CHF 100,000 of turnover (standard rate 8.1%), the obligation of full accounting above CHF 500,000, registration of employees for AHV/IV/EO (old-age, disability and loss-of-earnings insurance), ALV (unemployment insurance), BVG (occupational pension) and UVG (accident insurance). On the VC front, the round is carried out with a capital increase entered in the commercial register and regulated between the articles of association and a shareholders’ agreement; the AG, with its flexibility on share classes, is usually the form preferred by institutional investors.
How we work
SIH ONE helps founders set up their financing strategy, make the company “investable” and correctly structure any round. If you are weighing up which path to take, let’s compare notes with our ventures team.