# Your own money or investors?

> The advantages and disadvantages of venture capital against bootstrapping: what an investor really buys, why venture money expects huge growth, what self-funding costs and three questions for choosing how to fund a startup.

- Course: [From Idea to Profitable Product: Building Without Investors](https://productovi.com/courses/bootstrapped-product.md)
- Module: Before you start
- Lesson 1/30, ~26 min
- Source: https://productovi.com/courses/bootstrapped-product/own-money-or-investors

## Where you work

**Alex Tutor:** Welcome to the course. Meet **GarageDesk**, a subscription web app for independent car repair shops in Ukraine: online booking, service reminders, repair history. Two co-founders run it: Nina, a developer, and Oscar, who does sales and support. They have a demo, their own savings and not one paying shop yet.

**Alex Tutor:** I mentor them, and you'll advise them alongside me. Over the course you'll help them with each decision, from the first paying customer to steady monthly profit and, perhaps, selling the company. We start with a question they face today: should they take an investor's money at all?

## Two million on the table: what an investor buys

**Alex Tutor:** Perfect timing: they've just messaged me. Last night they got an offer.

**Oscar:** Alex, big news! Richard, a former car dealer who now invests in startups, saw our demo. He's offering 2,000,000 UAH for 20% of GarageDesk!

**Nina:** He also wants us to hire three developers, grow tenfold in three years and raise a bigger round within 18 months. I'm not sure that's the company I want to run.

**Sofia:** Two million sounds amazing, though. Why hesitate?

**Alex Tutor:** Because Richard isn't paying for the product. He's buying a share of the company and, with it, a say in how fast and where it grows. Nina's list is the price tag: the real disadvantages of venture capital.

![An investor slides a thick envelope across a table to two founders while his other hand reaches for the steering wheel of their small car.](https://productovi.com/courses/bootstrapped-product/inline/own-money-or-investors-illustration-2.webp)

*An investor isn't paying for the product but for a share, and a say in the pace.*

> **Exercise:** Richard, a former car dealer who now invests in startups, offers 2,000,000 UAH for 20% of GarageDesk, on condition that the founders hire three developers, grow tenfold in three years and raise a bigger round within 18 months. What is he really getting for his money?

## Why venture capital wants huge growth

**Sofia:** But if GarageDesk becomes a solid, profitable business, won't he be happy?

**Alex Tutor:** Not necessarily. A professional investor makes many bets, knowing most will fail, so a few huge winners must pay for all the losses. That's the logic of **venture capital**.

**Alex Tutor:** A repair-shop app that grows 30% a year is a great life for two founders and a disappointing line in a fund's report.

**Sofia:** And what happens to their shares?

**Alex Tutor:** Today they own 50% each; after Richard's deal, 40% each. Sell another 20% in a bigger round, and every slice shrinks again. That's **dilution**.

![A round pie on a workbench is cut for two founders, then cut again as more hands reach in, and each founder's slice gets thinner.](https://productovi.com/courses/bootstrapped-product/inline/own-money-or-investors-illustration-3.webp)

**Alex Tutor:** It isn't evil in itself, and here's the main advantage of venture capital: a smaller slice of a much bigger company can be worth more. The question is whether that bigger company is the one you want to build.

> **Exercise:** Nina and Oscar own 50% each. They sell 20% of the company to Richard, and a year later another 20% in a bigger round. **True or false:** after both rounds, each founder owns 30%.

**Alex Tutor:** Let's push the numbers one step further. Suppose the next round sells 25% instead of 20%.

> **Exercise:** Nina and Oscar own 50% each. They sell 20% of GarageDesk to Richard, and a year later the company sells **25%** to a new investor. What percentage of the company does **each founder** own after both rounds?

## The other way: bootstrapping and self-funding

**Sofia:** What's the alternative? They can't build it for free.

**Alex Tutor:** **Bootstrapping**: building with little or no outside money. The founders' savings pay first, which is **self-funding**, and then, as soon as possible, customers' payments.

**Alex Tutor:** The price is honest: slower growth, no salary at first, and a failure hits your own bank account. In return, everything you build stays yours.

![Two founders push their own small car up a gentle hill toward a little repair garage, one keeping a hand on the steering wheel.](https://productovi.com/courses/bootstrapped-product/inline/own-money-or-investors-illustration-4.webp)

*Slower and riskier for your own pocket, but every decision stays yours.*

**Alex Tutor:** In between sits a whole shelf of startup funding options: a family loan, a bank loan, a grant, an investor who takes a share of revenue instead of the company. Each costs something different.

**Nina:** My aunt offered a loan. No shares, sure, but if GarageDesk fails, I'd hear about it at every family dinner.

> **Exercise:** Match each way to fund GarageDesk with what it really costs the founders.

## Investors or bootstrapping: three questions to choose

**Sofia:** So how do you choose?

**Alex Tutor:** Three questions. **Size:** can this market ever produce a company big enough for a fund? **Speed:** does winning require spending far ahead of revenue? **Life:** what should your work look like in five years, and whom do you want to answer to?

**Oscar:** Size: Ukraine has thousands of independent repair shops, not millions. Speed: shops choose software slowly and switch even more slowly. And we're two people with laptops.

**Nina:** Life: a profitable company that pays us well, where we decide what to build. Not 80-hour weeks chasing someone else's targets.

**Alex Tutor:** Then Richard's money would mostly buy haste they don't need. When speed does decide everything, as with hardware or a marketplace where the leader takes almost all, outside money can be the right tool.

![Size, speed and life: GarageDesk answers no market for a fund, no race, and a wish to decide for themselves, so bootstrapping wins over Richard's offer.](https://productovi.com/courses/bootstrapped-product/diagrams/m1-l1-three-questions.png)

*Three questions: size, speed and the life you want.*

> **Exercise:** Which founders have a good reason to consider outside investment? Select all that apply.

**Alex Tutor:** Before anyone compares offers, the order of thinking matters. Which way would you advise them to decide?

> **Exercise:** Oscar asks how to decide about Richard's offer: 2,000,000 UAH for 20% of GarageDesk. Which approach would you recommend?

## A choice, not a vow

**Sofia:** So they say no to Richard?

**Alex Tutor:** Yes, and for reasons, not pride: a modest market, no race and a clear picture of the life they want. Change those answers, and the decision could change too.

**Alex Tutor:** It isn't forever, either. Many founders start on their own money, prove that customers pay, and only then consider investors. By then they negotiate from strength.

**Alex Tutor:** Nina worries that saying no now closes the door for good. Is she right?

> **Exercise:** **True or false:** once Nina and Oscar choose to bootstrap GarageDesk, taking investment later would mean abandoning that choice for good.

**Oscar:** Honestly, I liked the picture of an office full of people. But not if I have to explain to Richard every month why we aren't ten times bigger yet.

> **Exercise:** Richard, an investor, offered 2,000,000 UAH for 20% of GarageDesk, with targets of tenfold growth in three years and a bigger round within 18 months. GarageDesk sells to Ukraine's few thousand independent repair shops, which choose software slowly and rarely switch, and Nina and Oscar want a calm, profitable company where they decide what to build. They decline. Which reason holds up best?

## Saying no without burning the bridge

**Nina:** We'll answer Richard today, politely. He knows repair shops, and one day we may want his advice, or even his money.

**Sofia:** Can I draft that reply? I want to check that I follow the logic.

**Alex Tutor:** Go ahead. Keep it short, give the real reason in words an investor respects, and leave the door open.

**Oscar:** And thank him for the demo feedback. He liked it.

> **Exercise:** Richard, an investor, has offered 2,000,000 UAH for 20% of GarageDesk, with targets of tenfold growth in three years and a bigger round within 18 months. GarageDesk's market is a few thousand repair shops that switch software slowly, and the founders want a calm, profitable company. Draft Nina and Oscar's reply to him in 3–5 sentences. Decline the offer, give the real reason in terms an investor would respect, and keep the door open.

> **Key ideas**
>
> - An investor buys a **share of the company** and a say in its pace and direction. Venture investors need a few huge winners, so they expect very fast growth.
> - Each round causes **dilution**: sell 20%, then another 20%, and 50% becomes 40%, then 32%.
> - **Bootstrapping** means building on your own savings (**self-funding**) and then on customers' money. It costs speed, salary and personal risk; it keeps control.
> - Three questions decide: **size** of the market, need for **speed**, and the **life** you want in five years.

**Alex Tutor:** Next time: Nina wants to quit her job for GarageDesk. Oscar isn't sure he can.

- Next lesson: [Side project or full time?](https://productovi.com/courses/bootstrapped-product/side-project-or-full-time.md)

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