There has been lots of talk on bootstrapping and how it is more capital efficient than VC funding. Max Bleyleben provides data to back up the case. Ramana says bootstrapping has become sexy once again and mentions stake dilution and burnt fingers as some of the drivers behind the trend. Sure as hell, scarce resources get utilized better. Many of us probably understood the value of one dollar better when we were teenagers than we do today. But can bootstrapping fuelled overcrowding in a sector destroy capital efficiency? I think the key here is to differentiate between capital needed to bootstrap versus capital needed to succeed. At the end of the day, what use is being capital efficient if you don't succeed? Consider a business which does not require too much capital to start. These are possibly the same businesses that will see greater bootstrapping activity. Also other things remaining the same, these are perhaps the same businesses which would need a whole lot more capital to succeed thanks to the crowding that will inevitably follow. Once the space gets crowded and success becomes elusive, people start looking outside: for capital, for ideas, for customers, for anything that would pull them out of the crab pot. It is probably much more difficult for a VC to allocate capital efficiently under such circumstances with all the noise. Bootstrapping is probably more capital efficient from a firm level perspective, but from the bigger sectoral view the story could be different especially when all the failures are added up. Can someone throw in some sector level data to prove/refute the argument?