When ISVs Should Consider The Move From Bootstrap Funding To VCs

By Bernadette Wilson

In this Business Solutions podcast,  John Bodrozic, cofounder of software developer HomeZada, discusses some of the challenges software developer companies face when raising capital.

While bootstrap funding may be necessary when beginning your venture — including development of a working product that can help investors understand your vision — as Bodrozic points out, those resources usually have limits and his company worked to maximize how far that capital could go.

Moving beyond bootstrap funding to grow a business bigger and faster can present new challenges, however. “ The tradeoff is, when you need that outside capital, you’re essentially going to dilute some of your ownership equity, and you’re going to lose some measures of control, because you’re going to have VCs [venture capitalists] on your board and perhaps some decision-making that they have veto power over,” Bodrozic says. “As a result, you’re going to have to give up some equity and lose some control.”

He also stresses that it’s important to remember why VCs invest in your company. “When you take on VC funding, you’re essentially signing up to provide those investors with a return. Most VC investors, if not all, aren’t investing in you to continue a lifestyle business for the next 20 years,” he comments, adding that return may come if the company goes public, but more often, when the company is acquired. “You have to be mentally ready and say, “Okay, we’re going to take $13 million. At some point down the road, we’re going to have to set ourselves up to sell the business,” Bodrozic says.

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