Venture capital has always been seen as the Holy Mecca of funding in Nigeria. All the big startups, like Paystack, Flutterwave, and Andela, do it after all. So, when in agreement to an NYT article, Jason Njoku, co-founder, and CEO of iROKO TV, wrote on his Twitter page: As grateful and fortunate as I am for this opportunity with @irokotv I will probably never start or run a venture-backed startup again. It shook the entire Nigerian tech ecosystem. What made things even worse was when Opeyemi Awoyemi, of Jobberman, added: I founded @Jobbermandotcom and @whogohost. One was venture backed, other was bootstrapped. One made me popular, the other made me wealthy.

Venture capital funding is funding put into a new business venture by a venture capital firm or angel investors, for the sole purpose of making an investment in exchange for equity. Bootstrapping, on the other hand, is when an individual attempt to found or run a business without any external funding. So, what are the pros and cons of Venture Capital funding and bootstrapping?

Faster growth: VC funding affords an entrepreneur and their business the chance to grow and do so much faster than their competitors. This is especially necessary for space where there a large number of competing firms and the product or business model is seemingly easy to copy. Onyeka Akumah, CEO of Farmcrowdy, puts it better, “If you have a brilliant idea in untested territory, don’t bootstrap to prove the concept because if you eventually do, then vultures who can raise more and market more than you will duplicate your ideas and take market lead”.

High skills and experience pool available: Many venture capital firms and angel investors are run by individuals with years of experience in the market or industry you seek funding for. They almost always provide mentorship opportunities to help your startup grow. VC's aren’t there to just provide investment and leave. They give the needed guidance to guard against any potential market pitfalls.

Loss of control: The biggest challenge faced by those who accept venture capital funding is the loss of control. After every funding round, the founder's equity is reduced, until sometimes, the CEO becomes just a figurehead. Toyin Subair, the founder of HiTV, recounted his sordid affair with investors that led to HiTv’s demise. HiTV collapsed because of a clause in its original Shareholders agreement, allowing a group of founding shareholders to block the company raising money. The block was instituted and it took the management 8 months to pursue another alternative appealing to shareholders, but by then, they were swimming in debts and had to stop operations shortly afterward.

A misunderstanding between founders and investors: This is unusually common, as many investors have different ideas on what they feel would be the best direction for the company. Many founders are pushed out of the company after a few years. Even the great Steve Jobs got kicked out of Apple because of his misunderstanding with the Chairman of the board and his misbehavior. In a Harvard Business Review study, it was found out by the time the startup was 3, 50% of founders were no longer CEOs; in year 4, only 40% remained; and fewer than 25% led their companies’ IPO.

Full decision making and control: The biggest positive that comes from bootstrapping is the control and full decision-making powers the founder has. MailChimp is one of the largest successful bootstrapped companies out there. Due to the fact that the co-founders control the company’s direction since it is bootstrapped, they were able to focus on what they felt was best for the business. Venture capitalists all wanted the firm to serve enterprise companies, but Ben Chestnut and Dan Kurzius, co-founders of the MailChimp, thought otherwise- and their doggedness has paid off.

Spend money wisely: Venture capital is like a drug; highly addictive. Entrepreneurs who bootstrap are more likely to utilize funds wisely than those who live off venture capital. Many companies obtain external funding, grow too fast or start making expensive business decisions, and end up burning through their investor’s money, ultimately going bankrupt. The Nigerian startup ecosystem is littered with many of such stories.

Higher chance of losing market share to competitors: As a bootstrapped business, it is hard to compete with those who have enough money to beat you to market. Given the slow growth rate of bootstrapped startups, they are susceptible to losing market share to others who are much better funded. Despite Google’s amazing product, it could not compete with Yahoo until it started receiving venture capital. In fact, Sergey Brin and Larry Page attempted selling the organization multiple times in the past but were unsuccessful. However, with better funding came a better growth opportunity, and now, Google remains the most widely used search engine worldwide.

Growth and client acquisition require large capital outlay: It’s been said, “It takes money to make money”, and this is ever so true in the world of business. To acquire 100,000 customers or build a platform that can cater for such from your current 1000 will need more employees and money to handle operational expenses. This is very difficult to achieve with bootstrapping, hence why it would make more sense to seek external funding. A huge influx of cash does wonders.

Mark Essien, CEO of believes that bootstrapping is not just realistic but important for every Nigerian entrepreneur, because it is almost impossible to obtain investments in our clime without showing traction. If you do bootstrap, you can control your startup and grow steadily over the years, but then again, losing market share is a present risk. However, there is a larger opportunity for growth using venture capital, but also the possibility of losing control over your business. So, the debate over venture capital versus bootstrapping really boils down to one simple question: Are you ready to be rich or king?

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