Ways to start a startup

Hey. If you’re getting some value from this blog, or you’re thinking, “hey, this is kinda cool, I like this, I kinda wanna buy him a coffee,” …well now you can, kinda. All you have to do is become a paid subscriber for $5/month which is the price of a coffee in 2023. You’ll be able to make comments and will get my secret notes.

I recently joined Purpose Built as a venture partner. Just think of me as scout with dealflow who's a little bit more involved in coaching and workshopping ideas. Purpose Built is a venture studio that brings together pre-idea entrepreneurs, capital, coaching, and resources to turn ideas into companies.

It got me thinking about the different ways one could start a startup. Depending on where you are at in life, some routes are better than others. And as someone who wants to increase the number of entrepreneurs and people working on creative work, I believe we should encourage and educate on the different ways.

Here’s some that come to mind:

• Bootstrapping

• Venture capital

• Crowdfunding

• Incubator / Accelerator

• Venture studio

Bootstrapping

Pros:

• Complete control over the direction and strategy of the business

• No need to give up equity or ownership in the company

• No pressure to meet the expectations of outside investors

• Greater flexibility in terms of decision-making and strategy

• Ability to retain all profits from the business

Cons:

• Limited access to capital which can slow down the growth of the business

• Limited access to expertise and connections that investors can provide

• Need to wear multiple hats and handle various aspects of the business

• Greater risk in terms of personal financial exposure

• Difficulty in recruiting top talent and competing with well-funded startups

• Need to be mindful of the balance between keeping expenses low and investing in growth

Venture capital

Pros:

• Access to a large amount of capital that can help scale the business quickly

• Access to expertise and connections from experienced investors

• Increased credibility and validation of the business idea

• Support and guidance from the investor throughout the growth of the business

• Possibility of attracting follow-on investment from other venture capitalists

Cons:

• Loss of control over the direction of the business

• Pressure to meet growth targets and milestones set by the investor

• Potential dilution of ownership and control

• Need to give up a portion of equity in the company in exchange for the investment

• Risk of conflicts of interest between the entrepreneur and the investor

• Need to focus on achieving high valuation or exit in order to meet investor expectations

Crowdfunding

This is like launching on Kickstarter or raising a “community” round on Republic.

Pros:

• Access to a large pool of potential investors

• Opportunity to gain exposure and build a community of supporters

• Validation of the business idea through the interest of the crowd

• No need to give up equity or ownership in the company

• Opportunity to test the product or service with early adopters

• Can serve as a marketing tool for the business

Cons:

• Limited access to capital, especially for larger funding needs

• Need to have a solid marketing plan to reach and engage potential investors

• Time-consuming process to set up and manage the campaign

• Potential risks of not meeting the funding goal or not delivering on promises to investors

• No expertise or connections provided by traditional investors

• Dilution of control if the crowdfunding campaign is structured as an equity offering

Incubator / Accelerator

Organizations like Y Combinator or Ai2.

Pros:

• Access to mentorship, resources, and expertise to help build the business

• Opportunity to network and connect with other entrepreneurs and investors

• Credibility and validation that comes from being accepted into a reputable program

• Access to funding and other resources to help scale the business

• Structured program with clear objectives and goals to work towards

Cons:

• Potentially high competition for acceptance into the program

• Limited time in the program, which may not be enough to fully build the business

• Need to give up a portion of equity or pay a fee to participate in the program

• Pressure to meet specific milestones and objectives set by the program

• Potentially limited freedom in terms of decision-making and strategy

• Can be time-consuming and intensive, with high expectations for participation and progress

Venture studio

Studios like Expa or Purpose Built.

Pros:

• Access to a supportive community of experienced entrepreneurs, advisors, and investors

• Reduced risks associated with starting a new venture due to access to funding, resources, and expertise

• Flexible approach that allows entrepreneurs to focus on building their businesses while receiving support and guidance

• Potential for unique ideas and business models to be developed with the help of the studio

• Possibility of launching multiple startups from the same studio

• Possibility of retaining control and ownership of the business

Cons:

• Need to give up a portion of equity or ownership in the company to participate in the program

• Limited freedom in terms of decision-making and strategy

• Potential conflicts of interest between the entrepreneur and the studio

• Pressure to meet specific milestones and objectives set by the studio

• Limited access to funding and resources outside of the studio

• Need to be mindful of the balance between the benefits of the studio and the cost of participation

Admittedly, the venture studio model is newer to me but it’s particularly interesting because it de-risks the venture before it starts, for better or worse. It allows entrepreneurs to focus on building without worrying about the capital they need to make it happen, at least in the beginning.