Does a VC-funded entrepreneur make more money than a bootstrapped one?

This was my response to a question on Quora

I worry that questions like these indicate that we have created the wrong perception about entrepreneurship in general, and VC funded startups in particular.

Often we come across individuals who want to become entrepreneurs because they believe that that is an easier way to make money. And while it may be true that entrepreneurship gives you a much better chance at wealth creation, considering entrepreneurship purely with the intention of wealth creation and then finding a concept to start up with is almost always a recipe for failure.

And there is a reason why entrepreneurs who start off with the objective of making money, and then try to find a mission often fail. Every business will have ups and downs… and in the initial phases there will be a lot more challenges than what the entrepreneur has anticipated. So, unless the work is in an area that the founding team is passionate about, they usually don’t have the patience or resilience to drive through the tough times.

If instead the entrepreneurs start a venture in an area of personal passion, or something that they feel deeply about, the chances of success, and of wealth creation are significantly higher.

On the question of whether entrepreneurs have a better chance of wealth creation with VC funding or without… well, wealth creation in a venture is a result of someone buying your equity. I.e. unless you are able to get an exit, there is no real wealth creation, though there will be paper value of the equity you hold. There are enough businesses that get acquired or where the entrepreneurs are able to sell their equity. Some of these businesses are VC funded, others are not. If you are boot strapped, you are going to hold much larger equity than if you had diluted equity in fund raising. Hence, if you get acquired, the quantum of wealth creation in a boot strapped company will be higher.

Making money however is a result of your business being a profitable venture that has the ability to pay you a good remuneration, and may be a healthy dividend as well. Does not really matter if the venture is funded by VCs or boot strapped.


Author: Prajakt Raut


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