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What is
Bootstrapping?
Bootstrapping is a means of financing
a small firm through highly creative acquisition and use of resources without
raising equity from traditional sources or borrowing money from a bank.
Venture
Financing Funnel
Venture
Financing: Key Documents
In
short, "bootstrapping" means starting a new business without start-up capital.
It is characterized by high reliance on any internally generated retained
earnings, credit cards, second mortgages, and customer advances, to name but a
few sources.
Why
Bootstrapping?
Bootstrapping is the most likely
source of initial equity for more than 90% of technology based firms. Venture
capitalists are rarely able to fund small start-up firms (in US, seeking lees
than $5 million), regardless of the quality of the venture, because of their
very specific investment criteria and high costs of due diligence, negotiating,
and monitoring. Bootstrapping offers many advantages for
entrepreneurs and is probably the best method to get an
entrepreneurial firm
operating and well positioned to seek equity capital from outside investors at a
later time.
Entrepreneur: 10 Action Roles
8 Key Entrepreneurial Questions
Bootstrapping Options
Bootstrapping options available to
entrepreneurs can be divided into four categories:
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Product development
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Business development
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Minimization of capital needed, and
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Meeting the need for capital.
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