VC is Not the Enemy

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Hey Shifters!

My LinkedIn feed has been flooded lately with posts weighing the outcomes of VC-backed founders against bootstrapped founders. The pendulum seems to be swinging hard against venture capital.

While these posts are attempts to spark discussion and, therefore, engagement, it does seem like there’s a strong push against VC.

Ironically, as someone who's written extensively about alternatives to VC funding and being careful about taking venture capital, I find myself needing to defend it. Because while VC isn't right for everyone, it's not the enemy either.

Let’s talk about why these comparisons are flawed and identify the role of venture capital for founders.

Comparing Outcomes

Let's look at this objectively by comparing two fictional startups in the same space: UpsellAI and ShopRise. Both help Shopify retailers increase revenue by upselling customers during checkout and both are started by two co-founders.

(Realistic) Best Case Scenarios

Note: these scenarios reflect realistic potential outcomes for a VC-backed startup vs. a bootstrapped startup. In both cases, the founders would probably be very happy with the outcomes. In actuality, the best-case scenario for both would look closer to the Upsell exit.

UpsellAI (VC-Backed Path)

• Raises $2M seed, followed by $10M Series A, $20M Series B, $40M Series C, and $100M Series D

• Grows to 500 employees with offices in five countries

• Exits for $1B through acquisition by Shopify

• Founders own 30% at exit → $150M for each founder

ShopRise (Bootstrapped Path)

• Founders both invest $25K of personal money

• Growth: $100K → $500K → $1.5M → $3M → $5M ARR over five years

• Distributes money to employees through profit-sharing

• Started profit sharing in year three → Each founder takes home $250K-2M in cash per year.

The path you choose depends on your preference.

If you want to build a big business and don’t mind all of the pressures that come with it, UpsellAI’s outcome probably looks good to you.

If you don’t need to build a big business and instead prioritize control and flexibility, ShopRise’s path is probably more attractive.

Worst Case Scenarios

UpsellAI

• Raises seed and Series A at $45M valuation (founders retain 60%)

• Founders pay themselves $100-200K annually

• Growth stalls at $3M ARR

• The company burns $200K monthly

• Shuts down when the company runs out of money

• Founders walk away with nothing

ShopRise

• Founders both invest $25K of personal money

• Grows to $500k after 3 years but can’t pass that

• Founders pay themselves $50-100K annually

• Eventually shuts down after hitting growth ceiling

In both cases, the companies shut down, but what can’t be ignored is that for ShopRise, the founders lost their personal investments and lost out on the salary that they would have been able to pay themselves had they raised VC.

The Reality

Raising VC raises your company’s ceiling and raises your personal floor. It allows you to grow faster than you would without external funding, and it all but ensures that even if the business goes to zero, you haven’t impacted your personal finances since you were able to build the business with other people’s money. However, it does come with a lack of control and consistent pressure from people who aren’t in the trenches with you every day.

Bootstrapping, in my opinion, lowers your company’s ceiling and your personal floor because you likely won’t be able to grow to the scale that you would if you’d taken external funding, and you’ve probably had to use your own money to get the business off the ground. On a positive note, though, bootstrapping means you retain full control of your company to build it how you want to build it.

Venture Capital Has Its Place

I get it. The autonomy of bootstrapping is appealing. Building without answering to investors, keeping full ownership, growing at your own pace — it sounds great.

But what is never mentioned in these posts is that bootstrapping can be incredibly draining, especially for underrepresented founders. While we celebrate bootstrapped success stories, we often forget the years founders spent unable to pay themselves and carrying the full weight of their business on their shoulders.

We shouldn't idolize the struggle. There's nothing wrong with wanting to pay yourself a living wage while building your company. Venture capital lets you do that.

How Else Are You Going to Get $1M?

At some point, most ambitious companies need significant capital. Maybe you've found product-market fit and need $500K or $1M to:

• Build out your team

• Invest in marketing

• Scale your infrastructure

• Accelerate growth

Sure, you could probably bootstrap and do these things slowly, but after 1-2 years of the financial struggles mentioned above, there’s nothing wrong with seeking outside capital to hit these milestones more quickly and alleviate some of your personal financial burdens. And the hard truth i that getting that kind of money outside of venture capital is tough.

Sure, you might cobble together some revenue-based financing or a small business loan, but if you want to hit major milestones quickly, VC often becomes a necessity.

Despite the paltry numbers for underrepresented founders attempting to raise VC, it’s often our only path to the amount of money we need to build our businesses.

Building Big Businesses

There's also something to be said for founders who simply want to build really big businesses.

While a bootstrapped company might create 25-30 jobs, VC-backed companies can create hundreds or thousands of opportunities. This impact matters, especially when these companies are built by founders from underrepresented backgrounds.

I’ve shared this story before, but I know a founder of a multi-billion dollar company (at least on paper) who burned through $2M in seed money in 9 months because he wanted to figure out if the business was VC-backable as quickly as possible. This founder was much more interested in building something massive than he was in maintaining control of this company or building a lifestyle business.

And I’m here to say that he wants to do this is 100% fine.

The Ideal Path

After seeing both sides of this debate, I believe there's an ideal path for founders that combines the best of both worlds:

1. Bootstrap to notable traction

2. Raise a small round

3. Focus on sustainable growth

4. Maintain optionality

Let me break this down.

Bootstrap to start

The goal isn't to hit crazy numbers but to prove you have something people will pay for. Get those first few customers and establish a clear path to getting more. This might take a year, during which you'll figure out how to make it work personally with limited resources.

Raise Outside Capital

Once you have traction, you might be ready for outside funding. This doesn't have to be VC – if you need $250K, you might find it through grants and accelerators. But if you need $500K to $2M, venture capital becomes your only realistic option.

Grow and Maintain Optionality

Once you've raised this small round, you have the money that you need to pay yourself to build a manageable team and to grow based on the traction and the insights that you gathered while you were bootstrapping.

As your company grows, maybe from $100K to $500K to $1M in ARR, you're putting yourself in a position to raise a seed round or a series A, and you've likely also hit profitability. And now you have the most important thing that a founder can have when building a business: optionality. You can choose to raise another round, you can choose to continue to grow steadily as you're growing, you own north of 80% of your business, and you're able to pay yourself, so you don't necessarily face the financial pressures that you would if you were bootstrapping the entire way through.

The Sweet Spot

This approach has worked well for us at Chezie. My sister and I still own north of 85% of our company. We've grown at least 100% each year for our first three years. If/when an exit happens, we're well-positioned to generate returns for ourselves and our investors.

It's the best of both worlds: enough capital to grow meaningfully while maintaining the autonomy that makes entrepreneurship appealing in the first place.

The Bottom Line

Venture capital isn't the enemy – it's just a tool. Like any tool, its value depends on how and when you use it.

I've spent a lot of time writing about why founders shouldn't default to VC funding, and I stand by that. But the pendulum shouldn't swing so far that we demonize VC entirely. There's room for nuance in this conversation.

The truth is, there are many paths to building a successful company:

• Pure bootstrapping

• Taking one small round and maintaining control

• Going full VC-backed with multiple rounds

… or some combination of these approaches

What matters is choosing the path that aligns with: your personal goals as a founder, your company's capital needs, and your tolerance for external pressure versus financial pressure.

The only person that can make the call on how to fund your business is you. Ignore the noise and focus on what works for you and your business.

See you next week,

Toby

P.S. ICYMI, I’m hosting a free webinar on grant applications today. February 12, at 12 pm ET. It’s not too late to register! 👇🏾