In the world of startups, the allure of venture capital often overshadows the virtues of bootstrapping. Recent exits of bootstrapped companies — like Text Request’s acquisition by Commify, Syft Analytics’ sale to Xero, and Silo.AI’s exit to AMD — highlight the power and potential of staying self-funded. These examples underscore why more entrepreneurs should consider bootstrapping as a strategic choice, not as a fallback, focusing on sustainable growth which can become effective in times of trouble.

The misconceptions around bootstrapping

At a recent lecture I gave, a student shared a common misconception: that “bootstrapping” simply meant a company couldn’t raise VC money. This view casts bootstrapping as a fallback due to failure rather than a strategic choice. In reality, many founders actively choose bootstrapping to retain control, prioritize market needs and grow sustainably, free from external pressures.

The merits of bootstrapping

Bootstrapping — building a company using personal finances and reinvested profits — brings unique advantages beyond simply “no dilution,” which in itself is not a merit in my mind:

1. Control and agility: Founders who bootstrap retain complete ownership and control over their companies. Without the need to answer to outside investors, they’re free to make decisions that align with their vision. This autonomy fuels innovation and responsiveness, as founders can adapt quickly to market changes.

2. Financial discipline and market-driven growth: Operating without external capital encourages financial discipline and a focus on profitability from the outset. Bootstrapped companies must meet genuine market needs to drive revenue, fostering a customer-first mindset. This disciplined approach also enhances market alignment, as bootstrapped companies have a natural incentive to prioritize customer satisfaction and retention over rapid, externally driven growth.

3. Long-term resilience and attractive M&A potential: Bootstrapped companies often have cleaner cap tables and more realistic valuations, making M&A processes smoother and more appealing to buyers. With fewer investor obligations, founders have more flexibility in negotiations and also more strength as they can always say “no” and continue to grow on their own. During economic downturns, bootstrapped companies built on profitability and cash flow can also weather financial challenges better, making them more resilient and attractive to investors and acquirers in tightening capital markets.

By focusing on sustainable growth and market-driven products, bootstrapped companies not only build resilience, but also position themselves for valuable exits when the timing is right.

Itay Sagie is a strategic adviser to tech companies and investors, specializing in strategy, growth and M&A, a guest contributor to Crunchbase News, and a seasoned lecturer. You can connect with him on LinkedIn for further insights and discussions.

Illustration: Li-Anne Dias