Why a Venture Capital Bubble Is Good for Bootstrapped Entrepreneurs

Not explicitly mentioned in the article: VC bubbles redirect resources toward flat-out bad ideas (to the point that they brag about how few of their ideas pan out) which sends otherwise competent human capital off on fools errands. So your smarter competition is off building pintrest-for-cats or navel gazing at one of the over-funded tech giants.

The bootstrapper doesn't have that luxury: the idea is singular, it has to work. Therefore he or she must get to cashflow quickly, or adopt a secondary business to self-fund the idea. Either way, it isn't Other People's Money, which concentrates the mind.

Nice article, but I was amused by this:

> If it takes too long to turn a profit, as a bootstrapped company you're dead in the water.

I love how it's now an assumption that VC-funded companies will not be profitable until they're flipped. That's a relatively recent invention, for those that weren't around before the internet bubble.

I tend to disagree with the logic here. I think another way to frame this is that companies that don't NEED VC money (I emphasize NEED because we all know there are a lot of companies of late that aggressively go after VC dollars without any real plan for how it is to be spent) are going after a space in which it is probably extraordinarily difficult to build a $100k business, let alone a $50MM business. No matter what, if you don't need a huge amount of money to start, the initial barriers to entry in monetary terms are low. It is certainly not impossible to build a sizable business out of complete obscurity without investment (because money is just one barrier to entry), it is just extremely difficult to do.

If it is easy to build, there will be an enormous amount of competition until the ability to make any money is squeezed out. If it is extremely difficult to build, your competition will be very limited.

So I actually believe the exact opposite is true- the more investment money you NEED, the less competition you're going to face. It may be tempting to think that if you just go after a very small, niche market, you can corner it really easily because everyone else will ignore it in favor of larger opportunities, but that's just not realistic. Again, not saying there is anything wrong with this approach (I believe bootstrapping is better than trying to get overly aggressive early on in your career), but very few businesses are easily built and sustained for a long period of time.

So VCs bidding up the prices on everything every startup needs (founders, early employees, later stage employees, offices, etc.) is good for bootstrapped companies how, exactly?

The only way VC funding helps bootstrapped companies is if the bootstrapped companies are selling to VC funded startups (developer tools, for instance), or if the VC funded companies build infrastructure (great platforms, network infrastructure, etc.) which helps the bootstrapped companies serve other customers in a capital efficient way. Otherwise, it's just more competition, either for factors of production or customers, and not really a good thing.

There are some industry segments where being bootstrapped makes a lot of sense (consultancies), others where it makes no sense (huge fiber rollouts), and some where both strategies can coexist.

Also, you should be aware of the differences between fully bootstrapped, angel or seed funded (directly to profitability, but with "real" investors), and traditional VC funded. There are a lot of cases where people talk about bootstrapping but really mean using angel or seed funding until deciding later about VC funding for the business.

Some truth to this but i dont know i agree with everything.

We're a bootstrapped company too. Very small, just getting our product in good shape for prime time and getting feedback from customers on what it will take to convert them from free to paying customers.

Funding for us would save a lot of headaches, give us the ability to spend some money on UI and accelerate our dev cycles...but i'm sure it'll also create just as many.

The truth i see in this is where he talks about VC funded companies having high expectations. As a bootstrapped company you can target a very small niche, as someone with a significant amount of funding...you do need to have a little broader horizon...but is that so bad? Maybe not after the first 6-12 months.

Personally i think funding is all about timing. Don't take it when you need it, take it when you want it...

Sorry but I'm not clear on the point of this.

Is it that VC-backed companies cannot pursue smaller markets and so there are nice size opportunities left for bootstrapped startups?

i love the airtime for email idea. you should raise a round and get some sales guys to push it!

I'm skeptical if this guy understands what he's talking about.

He says he doesn't have to build a billion dollar company, he can just build a $50 million dollar company and go home happy. It's probably time for a massive reality check, because that's not a good way to assess your bootstrapped context.

I don't know who Dan Shipper is, but I'm hoping he's 19 or 23 years old and just getting started in business.

edit: I'm happy to find out he is in fact that young. Good for him, I remember being that naive at his age. He'll learn a lot from doing Airtime no doubt.