TLDR: There’s a Third Way. Just Raise One Round.
– The debate between bootstrapped and VC-backed startups is ongoing.
– However, there is a third option: raise one round.
There’s much discussion and debate amongst entrepreneurs about whether to bootstrap their startup or seek venture capital (VC) funding. Each has its own advantages and disadvantages. Bootstrapping allows you to maintain control and focus on unit economics, but it’s generally seen as harder and takes longer to scale. VC funding, on the other hand, can help you grow faster, but it often results in significant dilution of ownership.
However, there’s a third way that many startup founders overlook: raising just one round of funding. This approach has been successfully adopted by companies like Klaviyo, The Trade Desk, Zapier, and Veeva. These companies raised a seed fund or a single core VC round and didn’t raise additional substantial capital until the pre-IPO stage.
Raising less than $10 million, especially less than $5 million, allows founders to maintain control, optionality, and most of the cap table. While a one-round strategy may result in some dilution (from 100% ownership to around 70%), it also gives founders the freedom to choose their own exit strategy. Investors who have put in smaller amounts of capital are usually more open to any exit that offers them a return on their investment. As long as the initial investors have an opportunity to make money, they are usually less concerned about blocking exits or creating drama. This level of capital efficiency allows founders to stay in control while still providing enough funding to get the business off the ground and support the core team.
However, this approach is not without its challenges. Startups that raise only one round of funding need to be highly efficient and strategically compete against more well-funded competitors. It’s not always the right strategy for every business.
In summary, raising just one round of funding can offer founders the flexibility and control they desire while still providing enough capital to kick-start their business. While it may not be the right approach for everyone, it’s worth considering as a viable option for those looking to strike a balance between capital efficiency and growth.
