Bootstrapping and Why More Polish Startup's Should Consider It
By: Paul Chen
In my last re-post, it mentioned the possibility of EU funding, PoiG, for startup's. I really like the rational for the funds and when it works, it can be wonderful for the economy of a region or a whole country. It will inject credit, money and capital into an economic system. In turn, creating jobs, creating more competition as well as promoting collaboration between businesses and as a result providing the customer with better services and better products. In the end, all parties win. Lower unemployment, better service, better products, more satisfaction, more tax revenue for the municipality all sound great, right?
Unfortunately, many times when things looks wonderful on paper don't always work out when put into practice. One must look at the EU funds as a first round funding for your startup business. A little background information first. The EU in order to promote a more smooth running society decided to provide a vast amount of money which are earmarked for business development as well as community improvements. Community impovments can include the clean up of a certain part of a city or to upgrade some piece of infrastructure that has fallen into disrepair. As for business development, I will focus on the SME's.
How to get the Funds?
First one must draw up a business plan as well as provide information on whether you will employ people or if you will run it on your own. You are looked upon more favorably if you say that you will be employing people. Then you will have to file the necessary paper work and wait for the decision. There are services which will provide you with assistance on how to write your proposal in order to increase your chances of acceptance. More information can be found here. Other than that, here in Poland, when you start your own business there are some tax deductions for the first period (up to 24 months) of your business operation, mainly less ZUS payments. Those who have ran businesses in Poland will attest to how much they dread their monthly ZUS payments.
Why is the Well Running Dry?
Some funds in previous years provided young startup's and SME's just about all the startup capital they needed to get their business off the ground. As I said before, one must look at these funds as those obtained in the first round of your fund raising efforts. It will not do everything for you. Many people put these funds into their pockets. Others weren't careful with these funds and wasted it on unwise business investments and expenses. As a result, the businesses went bankrupt and lives were ruined. As the media will tell you, there is a on-going crisis in the Euro-Zone. Consequently, the EU has to be more careful with their money. The new programs of funding will only cover part of the startup capital you will need (up to 70%). You will need to find the rest on your own.
Enter VC's and Angels
Many young people have wonderful ideas and would like to put these ideas into a way that will make them money and launch a nice career. At least, that is the dream. However, a majority of these individuals in Poland lack the funds to get started. In previous posts, you have learned that many of these young aspiring entrepreneurs have lots of wonderful technical knowledge and can sometimes spin straw into gold. However, they lack the business acumen to raise the funds or to monetize their ideas. So, where are they going to get that other 30%, provided that their application has been accepted? Enter the VC's and Angel Investors. As Cinderella will tell you, her fairy god-mother really helped her get ready for the ball at the prince's palace. These investors will help you launch your product and/or service. If your startup needs are small (Less than $1 million) you will just need an Angel but if your startup needs are substantial (more than $1 million) you will need a VC. More on Angels vs. VC's in another post. One must always remember, this money comes with strings attached. Just about all of these investors are not in the practice of throwing their money away nor are they charities. They are able to get where they are through shrewd investments and sometimes lucky breaks. Some of these said strings may be that you will have to give they a share of the company (up to 30%). Other investors will want to have a seat on your board and have a part in the decision making process through the life of your business. At some point, they might even try to buy you out by giving you a golden parachute.
How do you maintain control of your business and be the ultimate decision maker? Bootstrapping! That means you will have to use your own money amass money from your loved ones or save it up from your jobs. Only through bootstrapping will you really „own” your company. Although you are in control, make no mistake, there is much risk involved. If things go bust you might lose everything. But let's try to think positive, if things go well, you will be able to reap the rewards and not have to share it. And by having complete control over your product or service you will be able to make changes or do other adjustments without having to get permission.
The Final Take Away
I understand that many young entrepreneurs would really like to make their dreams come true. I understand that many startup's in Krakow can really make a difference in our young ecosystem. I know that many of these individuals simply lack the funds to get started. I simply want to provide some things to consider before you sign your idea away. I am not saying that all VC's and Angels are business eating sharks who only care for the bottom line. I know some of them personally and can even consider some of them friends. And they are wonderful giving people who can do wonders for your business and connect you with the right people. In future posts, I will be covering some of the good ones who really care about the Krakow Startup Ecosystem.