From Bootstrapping to Venture Capital: When Is It Right to Switch Gears?

In the world of entrepreneurship, timing is everything—especially when it comes to raising money. Increasing numbers of entrepreneurs are opting not to pursue venture capital during the earliest phases of conducting business in favor of another activity: bootstrapping. This involves talking face-to-face with potential customers about their needs (and being able to pivot the focus of the business as a result), engaging the ideal mentors and board members, and learning what potential competitors are doing. For many young startups, bootstrapping can be a much superior option to seeking VC capital.

At a later stage, however, as companies grow and thrive, there may very well come a time when it does makes sense for entrepreneurs to begin seeking venture capital. Specifically, there are five milestones that, once they are reached, can signal that the time may be right to go down the VC route. Here are the five milestones, to which I have added some insights from my own experiences as the cofounder of a startup named ObjectiveEd, which is dedicated to gamifying educational curriculum for students with disabilities, from pre-K through 12th grade.

• Risk factors have been eliminated. The first step is to make sure the company’s business model is stable enough to succeed. Identify the factors that could impede growth and ensure they are not going to stifle your success. In the case of ObjectiveEd, we were aware that apart from some scattered efforts to construct games for the special education community, we knew we needed a comprehensive approach so we would always be the best, even if a new competitor appeared. We continuously innovate and use the feedback we get from teachers to leapfrog even our own advancements.
• The product or service has been accepted by the marketplace. During our initial bootstrapping phase, we encountered overwhelming enthusiasm for the ObjectiveEd model from educational organizations, individual educators and students alike. For example, the games we developed for visually impaired learners—which are designed to strengthen everything from navigational skills to braille to mathematical ability—were embraced by these audiences, who told us they appreciated the fact that the games had been developed “from the ground up” with their particular needs in mind.
• Scalability has been proven. It was important for our team of developers to ensure we would be able to satisfy the needs of the special education community. This was key not only in terms of the quality of the educational games we set out to produce, and how well they were able to impart the skills that we wanted students to learn, but also with regard to the range and number of games we would be able to produce. To date, we have unveiled dozens of games and we have received praise for their versatility and widespread appeal.
• Recognition has been received via awards and the media. How a company is being honored by organizations within its industry—and depicted in print publications, radio and TV, and online—is obviously a major influence on its reputation. In the case of ObjectiveEd, for example, winning the 2019 Touch of Genius Prize for Innovation (bestowed by National Braille Press at Cal State Northridge’s annual Assistive Technology Conference), along with a slew of positive articles in outlets catering to the needs of the special education community, added to the company’s appeal as viewed from the outside.
• Have an important mission that engages all of its stakeholders. ObjectiveEd’s mission is to provide students with disabilities, and the parents and professionals dedicated to their education, with digital curriculum and integrated performance monitoring and reporting tools that will help the students achieve their best educational outcomes. This mission motivates us and keeps our focus where it should be: to grow a profitable company that makes a difference in society.

Venture capitalists review dozens of business plans every day. When they see a company that is operated by a management team that has achieved its goals of eliminating risk for investors and is now ready to scale its operations, they pay attention. It’s a rarity, and it can make a difference between getting that critical face-to-face meeting and being passed over.

By keeping careful tabs on each of these five milestones and noting when each has been achieved, entrepreneurs are more likely to find that the time is right to begin to pursue VC funding—which can set the stage for stronger and faster growth that will hopefully characterize the company’s next phases.

Marty Schultz

Marty Schultz, a serial entrepreneur and founder of a string of successful software companies, has been an advocate for the idea that entrepreneurs should not immediately seek venture capital but should look initially at bootstrapping. Marty balances being an award-winning keynote speaker on the topic of bootstrapping and being cofounder and President of ObjectiveEd.