My Case Against Raising Institutional Capital in 2024
By Guy Pistone
This piece was inspired by two different companies I had started: one that raised venture capital and got acquired, and another that I self-funded and currently operate. It stems from my firsthand experiences and aims to shed light on an often overlooked and less sexy approach: bootstrapping. While raising funds can accelerate growth, there’s a compelling case for growing your company organically.
Also, raising institutional capital is significantly easier for founders who have already had an exit. If you haven't experienced a successful acquisition, securing funding will be much more challenging. Therefore, you should be prepared to operate your startup with the understanding that you might never raise institutional capital,and that's perfectly fine. However, if your business gains traction and starts attracting investor interest, here are several compelling reasons you should consider not fundraising.
The Bootstrap Advantage
Leverage AI for Scalability
Suppose you harness the power of AI and build systems around its capabilities. In that case, you can leverage AI agents to help operate your business without hiring dozens or hundreds of people. This is the transformative potential of AI. Raising millions of dollars to scale your team becomes unnecessary when you can invest time in learning how to utilize open-source AI or customize your own AI solutions.
Develop Superior Processes
Fundraising often results in a financial cushion, leading to the temptation of throwing money at problems. However, when your money is on the line, you approach problem-solving with a more meticulous and resourceful mindset. This fosters a culture of optimization and efficiency that can be invaluable in the long run.
Focus on Sustainable Growth
Related to being forced to have better processes, if it’s your own money at stake, you’re likely to make better long-term decisions for your company. Investors typically want a return on investment within 3-5 years, but not many companies can achieve this expectation. My guess is probably less than 10% of seed-funded startups. This means that decisions often prioritize immediate revenue over building a sustainable business. For example, I could spend heavily on customer acquisition through Facebook, but what happens when that well dries up? What happens when the entire target audience has been reached?
A startup without institutional backing may approach this differently, focusing on acquisition testing, growth hacks, or developing an organic funnel that continually generates leads. A great example is investing in a content strategy or SEO, which are long-term decisions that may take years to yield significant results but offer more sustainable growth compared to customer acquisition cost (CAC)-driven approaches that can falter if platforms like Facebook or Apple change their data policies.
Reduce Time Spent on Fundraising
When I ran my startup, about 40% of my time was consumed by fundraising. After closing my seed round, I had to calculate my burn rate and determine when I’d need to start engaging with investors again. Which typically turned out to be just six months later. Fundraising is incredibly time-consuming; it involves crafting materials, A/B testing them, optimizing your pitch, and speaking to LOTS of investors. To even secure meetings with investors, you need to seek feedback from other founders and ask for introductions, which is a demanding process. This exhaustive effort can be counterproductive to growing your company. As the CEO and founder, your primary focus should be on operating and expanding your business, not on the constant fundraising cycle. In fact, I have heard a VC say before “The greatest trait in a good CEO is their ability to fundraise.” In my opinion, that should definitely not be on the list of the top CEO traits.
Avoid Questionable Advice
Institutional investors can provide valuable insights, but they can also offer advice that doesn’t align with your vision or the best interests of your company. Bootstrapping shields you from external pressures and allows you to trust your instincts and seek guidance from genuinely knowledgeable experts.
Retain More Ownership
While it might seem obvious, it's crucial to highlight: that raising capital doesn't stop at the seed round. You will likely go through multiple rounds—seed, bridge rounds, Series A, Series B, Series C, and possibly more before an exit. Throughout this process, you'll need to create an employee options pool and allocate equity to strategic board members. By the end, your ownership stake could be reduced to less than 10%, especially if you’re not a solo founder. In that case, you better get a billion-dollar exit!
Enjoy Greater Autonomy
Truly getting to call yourself your own boss, I believe this is the most crucial difference. As a startup founder with institutional backing, you essentially work for your investors. You'll have to report to them quarterly, sometimes even monthly or weekly, and some might check in on you daily. If you decide to take a vacation, you can't even post about it on social media without risking backlash for seemingly misusing their funds (and rightfully so because you shouldn’t be on vacation using Seed funds). If you value true autonomy and control over your business, avoiding outside funding is best.
Conclusion:
My best advice to founders comes from my own experience with my second company: I funded it myself and grew it organically. I was okay with a slower pace. When I needed additional scale and support, I leveraged the asset I had built and turned to local banks for help. Local banks can be very supportive if they see revenue and past successes. Of course, working with banks has its risks because if things don't go as planned, you owe them.
To be clear, there are certainly benefits to working with VCs and raising funds through institutional investors. Many are incredibly smart and have extensive networks that can be very advantageous. However, it’s important to recognize that sometimes, it just doesn’t make sense.
If you're building your tech business from scratch and need a technology partner, request a consultation with our expert team. We have helped generate over $500 million in funding for our clients.
