Ways to start a startup
Bulleted list of the pros and cons for each
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I recently joined Purpose Built as a venture partner. Just think of me as scout with dealflow who's a little bit more involved in coaching and workshopping ideas. Purpose Built is a venture studio that brings together pre-idea entrepreneurs, capital, coaching, and resources to turn ideas into companies.
It got me thinking about the different ways one could start a startup. Depending on where you are at in life, some routes are better than others. And as someone who wants to increase the number of entrepreneurs and people working on creative work, I believe we should encourage and educate on the different ways.
Here’s some that come to mind:
Bootstrapping
Venture capital
Crowdfunding
Incubator / Accelerator
Venture studio
Bootstrapping
Pros:
Complete control over the direction and strategy of the business
No need to give up equity or ownership in the company
No pressure to meet the expectations of outside investors
Greater flexibility in terms of decision-making and strategy
Ability to retain all profits from the business
Cons:
Limited access to capital which can slow down the growth of the business
Limited access to expertise and connections that investors can provide
Need to wear multiple hats and handle various aspects of the business
Greater risk in terms of personal financial exposure
Difficulty in recruiting top talent and competing with well-funded startups
Need to be mindful of the balance between keeping expenses low and investing in growth
Venture capital
Pros:
Access to a large amount of capital that can help scale the business quickly
Access to expertise and connections from experienced investors
Increased credibility and validation of the business idea
Support and guidance from the investor throughout the growth of the business
Possibility of attracting follow-on investment from other venture capitalists
Cons:
Loss of control over the direction of the business
Pressure to meet growth targets and milestones set by the investor
Potential dilution of ownership and control
Need to give up a portion of equity in the company in exchange for the investment
Risk of conflicts of interest between the entrepreneur and the investor
Need to focus on achieving high valuation or exit in order to meet investor expectations
Crowdfunding
This is like launching on Kickstarter or raising a “community” round on Republic.
Pros:
Access to a large pool of potential investors
Opportunity to gain exposure and build a community of supporters
Validation of the business idea through the interest of the crowd
No need to give up equity or ownership in the company
Opportunity to test the product or service with early adopters
Can serve as a marketing tool for the business
Cons:
Limited access to capital, especially for larger funding needs
Need to have a solid marketing plan to reach and engage potential investors
Time-consuming process to set up and manage the campaign
Potential risks of not meeting the funding goal or not delivering on promises to investors
No expertise or connections provided by traditional investors
Dilution of control if the crowdfunding campaign is structured as an equity offering
Incubator / Accelerator
Organizations like Y Combinator or Ai2.
Pros:
Access to mentorship, resources, and expertise to help build the business
Opportunity to network and connect with other entrepreneurs and investors
Credibility and validation that comes from being accepted into a reputable program
Access to funding and other resources to help scale the business
Structured program with clear objectives and goals to work towards
Cons:
Potentially high competition for acceptance into the program
Limited time in the program, which may not be enough to fully build the business
Need to give up a portion of equity or pay a fee to participate in the program
Pressure to meet specific milestones and objectives set by the program
Potentially limited freedom in terms of decision-making and strategy
Can be time-consuming and intensive, with high expectations for participation and progress
Venture studio
Studios like Expa or Purpose Built.
Pros:
Access to a supportive community of experienced entrepreneurs, advisors, and investors
Reduced risks associated with starting a new venture due to access to funding, resources, and expertise
Flexible approach that allows entrepreneurs to focus on building their businesses while receiving support and guidance
Potential for unique ideas and business models to be developed with the help of the studio
Possibility of launching multiple startups from the same studio
Possibility of retaining control and ownership of the business
Cons:
Need to give up a portion of equity or ownership in the company to participate in the program
Limited freedom in terms of decision-making and strategy
Potential conflicts of interest between the entrepreneur and the studio
Pressure to meet specific milestones and objectives set by the studio
Limited access to funding and resources outside of the studio
Need to be mindful of the balance between the benefits of the studio and the cost of participation
Admittedly, the venture studio model is newer to me but it’s particularly interesting because it de-risks the venture before it starts, for better or worse. It allows entrepreneurs to focus on building without worrying about the capital they need to make it happen, at least in the beginning.