Is bootstrapping (self-funding without venture capital) still a viable strategy for startups today?

Paul Graham · published Mar 2005 · hedged

Startups are generally better off taking money from investors than trying to be self-funding.

Self-funding requires starting as a consulting company, and it's hard to switch from consulting to being a product company; most startups aren't self-funded anyway.

Scope: exceptions like Microsoft exist

source How to Start a Startup

Paul Graham · published Oct 2006 · hedged

Taking funding is statistically a good bet, as most successful startups do it at some point.

Like having more than one founder, the statistics favor it.

source The 18 Mistakes That Kill Startups

Paul Graham · published Apr 2007

Startups that want to succeed do need outside investors, because practically every successful startup takes outside investment and competitors who take it will gain an advantage that compounds.

The question is not whether you need investment but whether it could help at all; if it could and you refuse it, funded competitors gain an edge, and in startups a small advantage can expand into a large one.

source The Hacker's Guide to Investors

Paul Graham · published Aug 2008

Bootstrapping rarely works; the fame of bootstrapped startups is evidence of its rarity, since if it worked well it would be the norm.

The mere fact that bootstrapped startups are famous for being bootstrapped shows it is exceptional rather than effective.

source A Fundraising Survival Guide

Paul Graham · published Jul 2009

Pure bootstrapping — never taking investor money — does not work well empirically; few startups succeed without taking investment.

Empirical observation of startup outcomes; also, as startups need money less they can get it on better terms and so become more inclined to take it, producing an equilibrium.

source Ramen Profitable

Paul Graham · published Dec 2008

The cost of starting a startup has fallen to near nothing, driven by cheap hardware, free open source software, free web distribution, and more powerful languages allowing smaller teams.

Moore's law made hardware cheap, open source made software free, the web made marketing and distribution free, and powerful languages shrank development teams; in most YC startups the biggest expense is founders' living expenses.

Scope: especially internet/software startups

source Could VC be a Casualty of the Recession?

Paul Graham · published Dec 2008

Because the profitability threshold can be trivially low, many internet startups no longer need VC-scale investment; VC money has gone from a must-have to a nice-to-have.

Crossing into profitability, however low, makes a startup's runway infinite, so it no longer needs investors' money.

Scope: internet startups

source Could VC be a Casualty of the Recession?

David Heinemeier Hansson · published Apr 14, 2020

It has never been easier to start a software company without raising outside money, so the idea that you need venture capital is complete bunk

Software and cloud operations are virtually free with no users; you can bootstrap from a job or nest egg, live anywhere, and stay small — the path Basecamp took in 2004 is far easier sixteen years later

Scope: applies to software companies; assumes you are selling a product to users

26:24 20VC: Basecamp Founder David Heinemeier Hansson on Why It Is The Biggest BS To Chase Being A Unicorn, His Relationship to Wealth and Status and Why Now More Than Ever It Is A Myth Entrepreneurs Have To Raise VC

Paul Graham · published Apr 2007 · speculative

As it gets cheaper to start a startup it may become possible to succeed in a competitive market without outside funding, but as of now the empirical evidence says raising money is a net win.

There are real costs to raising money, but the evidence currently favors taking it.

Scope: as of this writing

source The Hacker's Guide to Investors

Paul Graham · published Aug 2008 · hedged

Even as starting a company gets cheaper, most startups will never be able to do without outside funding.

Technology tends to get dramatically cheaper, but living expenses don't.

source A Fundraising Survival Guide

David Heinemeier Hansson · published Apr 14, 2020

The enabling factors for bootstrapping are accessible to a far larger share of potential entrepreneurs than the VC/accelerator route, which requires being well connected

Getting into an accelerator or in front of a seed investor depends on connections available only to a tiny group

30:03 Bootstrapping democratizes access compared to connection gated vc accelerator route

Mike Salguero · published Apr 5, 2023

ButcherBox would likely be out of business today if it had raised venture money

They would have raised in 2015 at hot valuations and raised again, never being forced to build a profitable business, and then all the box-subscription funding dried up after Blue Apron's stock collapsed

51:53 Raising venture capital would have forced premature scaling and likely failure

Scott Farquhar · published Oct 9, 2023

Bootstrapping is still viable today in very niche software markets with little competition, but not in markets where dozens or thousands of rivals have raised 10x to 100x more capital

Better-funded competitors can solve customer needs much faster than you can; niche markets lack that competitive pressure

7:43 Bootstrapping viable only in niche markets with little competition

Paul Graham · published Aug 2008

Financing a startup out of its own revenues is impractical because you can't create instant customers and it takes unpredictably long to reach break-even while you still need money to live on.

Whatever you make, you have to sell a certain amount to break even, and it's hard to predict how long growing sales to that point will take.

source Self financing from revenue is impractical since breakeven timing is unpredictable and founders still need money to live on

Paul Graham · published Aug 2008

Building a startup slowly on the side only works when the idea is so unusual that no one else is likely to think of it.

Joshua Schachter built Delicious on the side because no one else realized it was a good idea, whereas an obviously necessary product like online store software would have been lost to competitors.

source Building slowly on the side only works for ideas so unusual no one else would think of them

Paul Graham · published Dec 2008

A growing number of founders judge that dealing with investors isn't worth the trouble and prefer reaching profitability on minimal funding.

YC founders report being happier after deals fell through, cut costs to reach profitability instead, and at least one company made it to profitability on YC's $15,000 alone.

source Founders increasingly prefer reaching profitability on minimal funding over dealing with investors