A Rebels Answer to VC or Bootstrap?

I read 37Signals post this morning about Not Taking Money. This is a common theme that 37Signals has been following, especially since DHH’s presentation at Start-up School:

They say you don’t need a big $100 million dollar idea and you don’t need Venture Capital.

They are right about the first one, there’s a lot of opportunities for making a well paying independent company without having a huge market and trying to IPO.

The second part is what bothers me.

Telling entrepreneurs to “do everything you can to avoid taking money“, without clarifying the type of business your talking about is some can be some very detrimental advice to give entrepreneurs.

Before making general statements like that, how about helping them identify whether their business opportunity is VC fundable or not?

The real problem is the entrepreneur thinking he has a $100 million dollar idea then shopping it around to VCs, getting shut down, and not pursuing it. When in reality he/she should of at least tried bootstrapping it, evolved the product and tested the market.

At the same time those who may have that potential might take that advice and miss an opportunity to fully realize their business.

Deciding on VC or Bootstrapping shouldn’t be about taking sides; being realistic about what your business needs, understanding the scope of your business and focusing on timing is a better strategy.

Who Should Aim for Venture Capital?

From my understanding, a VC fundable business has high growth potential that would give the investors a large return in 5+ years. Which is exactly why the VC would take such a high risk investing in you in the first place.

The businesses they invest in are often disruptive technologies in the high technology industry (IT, bio-tech, and clean-tech).

If your business does not fit into that category, then you probably shouldn’t be looking to VC’s for capital.

If I was considering bootstrapping or venture capital, I would be evaluating the opportunity instead of just following the “keep-it-small” philosophy at every step.

This is not about being different then other technology companies. It is not about screwing the big companies and keeping it small. 37Signals is playing the rebel to prove a solid point. Just be aware of the difference before taking their advice.