An idea can genuinely change your life, and the contemporary startup culture is an apt testament to the prowess of innovation sprinkled with the right of execution. For example, in 2020 itself, more than 4 million new companies began operating worldwide. The global startup economy created USD 3 trillion from 2017 to 2019. In case you are among the hundreds of thousands of aspirants aiming to contribute to this staggering figure, then some reservations are bound to loom over your head.

Unsurprisingly, finance and the way to attain that finance are two pressing concerns among startup technical co-founders. Certain startups often rope in investors for the monetary investment needed to materialize their business. However, the ‘hush-hush’ chatters about ‘crony capitalists who invest in a startup only to suck it dry off profits are far too common. But, the pertinent question is how accurate is this hovering perception! Well, let us find out.

THE WORKINGS OF STARTUP INVESTMENT

The inception of a startup is premised on the coming together of like-minded individuals with an innovative solution to a problem. They then test out their solution, deliberate a little, and find something that works, and a sizeable section of people wants to use. The innovative idea soon turns into a plan to build a business. But to execute that plan, what is needed is advice from seasoned entrepreneurs and money – a lot of money. An influx of investors is needed to meet the latter condition. There are a variety of routes open to you as an early-stage startup to attract investment funds from VC companies and angel investors. Venture capital is a financing structure for startups that need capital to scale.

There are two primordial ways by which an investor pours money into an early-stage startup –

• Investing in a priced equity round: The investors here purchase stock in your company at a predetermined price.
• Investment in securities (convertible): The investment amount can be converted into equity by investing in convertible securities.

Thus, tools like a startup equity calculator become essential for upcoming entrepreneurs. Now that we have touched upon the basics of startup investment, let us find an answer to the crucial question of whether or not you need an investor.

WHEN STARTUPS DO NOT NEED INVESTORS TO BE PROFITABLE

Startups do not always need an investor to be profitable. As a technical co-founder of a new company, you can survive and stay afloat even without assistance. Certain reports and anecdotal evidence suggest that every startup has outside investor funding, but that is a far-fetched opinion. Many businesses are thriving and growing without investors. Even you can keep investors at bay if bootstrapping and building your company is feasible. For instance, a recent study reveals that over three-quarters of small businesses use personal savings to build their company. Thus, bootstrapping is a better option for the following reasons –

• You can spend more time tending to your company as opposed to scouring for investors. Finding investors is a long and tedious process, something that may take months of your time and heaps of your energy.
• Funding your own startup also provides you control over financial management.
• Without investors, you will learn to reap off the last scraps as there is no spare cash for non-essentials, and you are compelled to direct all the money to the growth of your business.
• The best part of not having an investor is that you retain full business ownership.
• The internal relations are simple sans investors.
• Lastly, you learn to be self-reliant as a technical co-founder without investors.

What makes bootstrapping so viable is that you do not have to convince a bunch of investors about the merits of your idea. All you need to do is convince yourself. We can see several examples of currently pioneering companies that bootstrapped their way to success. For instance, Zoho – the renowned software and CRM Company that garnered USD 100 million in 2010, was bootstrapped. Other similar examples include QuickHeal Technologies, Media.Net, etc.

WHEN STARTUPS NEED INVESTORS TO BE PROFITABLE

There is no one-size-fits-all to the query concerning the need for an investor. At times, roping in investment from external sources becomes indispensable to give flight to your business ideas. Some of the good-enough reasons when an investor becomes essential are –

• The most solid investor to have an investor for your startup is if they can contribute vast sums of money to your business.