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Prakhar SharmaTop Contributor
Social media marketer, Content Writer
Asked a question 2 years ago

How much should I capitalize my business with at the beginning?

Where am I?

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Prakhar SharmaTop Contributor
Social media marketer, Content Writer

On day 1 of a business, the company is just an addition of risks: founder’s team risk, product risk, launch risk, market acceptance risk, revenue risk, profitability risk etc. Raising money (whether from existing or new shareholders) is a tool to peel off some of the risks.

Each time you reach a milestone, your risk goes down. If your risk goes down, the value of your start-up goes up. It is automatic. Therefore, you should calibrate each and every round of funding to the risk you want to eliminate.

This is a more robust way to think about how to raise and spend money than “let me get the more money I can so I can spend it on everything”.

How should you fund your business? Bootstrapping. It is pretty simple: use whatever source of money you can put your hands on (savings, credit cards etc.) to cover the period when you don’t have clients. Use the operating cash-flow once you launched (and launch as soon as possible).

Bootstrapping is a state of mind. You will need a lot of problem-solving skills and it might take your start-up more time to take off, but once it is off, you have a real business. Bootstrapping forces you to develop a sustainable business model and avoid working for years before figuring out that your venture doesn’t have any economic future.