I've fallen a bit behind with my blog roll, but this morning I came across this September post from Matt Winn on the intersection of bootstrapping and venture capital.
His post was in response to a book which makes the point that bootstrapping and using VC are mutually exclusive. Matt busts some of the myths implicit in that argument, including the notion that capital efficiency is incompatible with using external funding, or that fund-raising wastes too much of the founder's time.
You can read his detailed rebuttal for yourself, but I would add a few points of my own:
Capital efficiency does not mean that you don't use outside capital. It means that you use capital -- whatever its source -- intelligently. In order to be capital-efficient, you need to be customer-focused and customer-responsive; you need to prioritise your time furiously; and you need to be lean. When you combine these features with external funding, you can really supercharge a business and increase its equity value dramatically.
Smart entrepreneurs know that once they understand their own sales model, they can use additional cash to grow faster than is possible organically. In the right circumstances, that means increasing the value of your equity well beyond the effect of dilution from a financing round.
An increasing number of investors are tailoring their 'product' to meet the specific needs of bootstrapped entrepreneurs. Combining direct investment in the business with cash out to founders, for example, is a great way to align risk appetites and reward the founder for work done to date. Ownership and control questions can be addressed through good shareholder agreements and sufficient trust-building between investor and entrepreneur before committing.
Investors are also increasingly providing tailor-made assistance to entrepreneurs who are facing the challenges of rapid growth, such as helping design organisations for rapid expansion, recruiting good managers abroad, and replicating a sales model that worked on a small scale to operate globally.
From where I sit, no one can build equity value like a bootstrapped entrepreneur supercharged with a judicious amount of cash.