But the allure of being the brains behind the next big thing risks pushing even the savviest of entrepreneurs into hasty decision-making. How many are giving up control and equity too soon in the name of growth at all costs, instead of focusing on perfecting their core offering and actually becoming profitable?
For bright-eyed and bushy-tailed entrepreneurs in the STR market, securing the right kind of funding can mean the difference between genuinely sustainable growth and a rushed, ultimately unprofitable expansion. And with the funding landscape only getting tougher and tighter, it’s more important than ever to make the right choices about when — and when not — to take on funding.
So, how do you decide which path is right for you and when to make the leap? Let’s shed some light based on my observations.
Bootstrapping the beginnings
In the earliest stages of your startup, innovation is your superpower. You’re building something from nothing, which means your priority isn’t scaling — it’s product-market fit and getting the right team in place. At this stage, external investors are rarely necessary beyond seed funding, and in many cases, they can even become a distraction, bringing in the extra layer of investor demands.
Bootstrapping allows you to keep operations lean, make quick pivots and focus on experimentation without the pressure of outside influence. This is where innovation thrives as you can afford to take risks without fielding questions from a board of directors. While resource may be limited, bootstrapping builds resilience and creativity — qualities that you’ll definitely need later. And, as a bonus, if you reach profitability in this stage, you keep more of it for yourself.
Considering crowdfunding
Once you’ve proven your concept and started building a loyal user base, crowdfunding can be a powerful tool to propel your startup to the next stage. Apart from injecting much-needed cash into your business, crowdfunding has the added benefit of creating a community of brand advocates with an extra incentive to recommend your product to their friends and colleagues. These invested supporters are also ideal testers, helping you refine your offering.
But keep in mind that crowdfunding isn’t a free lunch. Securing committed investors demands significant upfront effort, from strong marketing to clear incentives. Further down the line, you will actually need to deliver on your promises. Treat this phase as your first taste of being accountable to an external audience — albeit with less pressure than big investors.
Weighing the benefits of venture capital
When you’re ready to scale rapidly, venture funding becomes an increasingly tantalizing option. Whether it’s expanding into new markets, investing in tech development or bringing on new team members to handle extra work, large injections of capital are often essential to achieving growth potential. At this stage, funding isn’t just about staying competitive — it’s about outpacing competitors and staking your claim in the market.
But venture capitalists don’t hand out money for free. In exchange, you’ll need to give up equity and accept increased pressure to deliver rapid returns. This often means more complex decision-making processes and potential compromises on long-term goals. Before approaching venture capitalists, ensure your finances are in order and you have a clear, actionable plan to deploy the capital effectively. Without a solid scaling plan or strong financial foundation, venture funding can backfire, pushing toward unsustainable growth and unattainable targets.
Most importantly, know where you stand once you secure funding: how will you maintain your vision and leadership where it matters most and where can you compromise?
Private equity's dampening effect on startups
As any industry grows and professionalizes, private equity (PE) inevitably makes an appearance. PE firms are becoming increasingly prominent in the STR sector, offering promises of profitability and operational expertise on a scale larger than this relatively young industry has seen. But there’s a catch: PE firms tend to prioritize short-term revenues over long-term sustainability, often stifling the innovation that got this sector to where it is today.
Think of PE firms as house flippers. They buy a business in decent shape, make super changes to boost curb appeal, and sell quickly to maximize profits. But if your long-term vision is just two or three years, how can you expect success five or ten years down the road?