Funding Your Startup: Bootstrapping Part 1

The recent great recession may force ‘Bootstrapping’ to be the primary funding strategy for many startup companies, for the next few years.

Where would startup companies be without Angel Investors? We will find out. In 2013 Angel group investment trends for 1st Half represented a total of 379 deals with $461 Million invested in total rounds, including co-investors.

angelsThe Angel Capital Association recently conducted an Angel investments survey; half the respondents believe they will receive more investment requests in 2014 than in 2013 the growth trend in the NW is +6.8%.

Angel liquidity, like yours and mine, had been devastated by the recent (but fading) unprecedented economic downturn and coming back with a roar as the stock market makes great leaps forward (Dow up +21%, 2013).

Sweat Equity

The downturn is forcing Angels to invest more carefully! Deals will still be made, but they may be fewer in number, and happen a little less frequently.

Despite the expected careful placement of Angel (and VC) moneys, the entrepreneurial minds in our population are still clicking away. They will continue to come up with great ideas and the desire to start new businesses.

The situation requires startup companies to exist on founders and other’s funds, and ‘Bootstrap’ their way to generating revenues; possibly all the way to breaking-even! Especially since a great number of them are life-style companies, even the Internet startups.

Bootstrapping is a way for entrepreneurs to utilize other people’s money in order to grow their company.

OK, it may not be actual money but it is people’s time and their expertise, and time is money. It is very common for engineering teams to be made up from ‘Boot-Strappers’, working for ‘sweat equity’ in a startup company.

Bootstrap Financing

Bootstrapped financing, in effect, is a means of financing a startup company by innovatively acquiring funds, or other assets, without raising equity through traditional sources, banks, etc.

The traditional ‘direct’ approach for many entrepreneurs is to get moneys from their family members, or friends, or from the sale (or mortgage) of their own assets, or even credit cards.

There are positive and negative aspects to Bootstrapping. On the positive side, waiting as long as possible to consider equity financing gives the entrepreneur a better chance of retaining more ownership in his/her company. On the negative, there is more time to run out of money.