Funding Your Startup: Bootstrapping Part 2

Angel or VC Moneys  –

Waiting for funding may actually raise the probability of obtaining Angel or even VC funds. Limited funds limits the performance and success a startup can achieve, and/or determines its solvency. Angel moneys (and VC $s) is often invested later in a startup’s growth cycle.

angelsWaiting until a company is further developed, gives an entrepreneur greater control in running a company. There will be fewer questions and less monitoring pressure from investors.

In effect the new company can be more flexible and agile and be better positioned to deal with the ambiguities that all startups face. Investor involvement and monitoring often forces a ‘strategic rigidity’ (see author’s article, “Underperforming Corporations”).

Types of Startups

Success or failure in Bootstrapping as the predominant funding strategy is dependent on a variety of factors, some of which may not be within the sphere of control of the entrepreneur.

Factors such as the business environment, or ambiguities and the awareness  of how the ‘type’ of company (being started) affects the success (or failure) of a new company, is often a ‘don’t know’ for entrepreneurs.

This Author, in his book “Business Genesis – A Strategic Approach to Starting a Business” describes five types of startup businesses:

  1. Life-Style Businesses
  2. Evolutionary Businesses (Corporate Spinouts, etc)
  3. Venture Funded Startup Businesses
  4. Revolutionary Startup Businesses
  5. Corporate Revolutionary Businesses

Each type of business requires a different funding strategy. Life-Style businesses for example are almost always Bootstrapped (about 95% of all startups in the US). And the others, and variations of the other types, present differing funding and Bootstrapping challenges.

Startup Growth Phases

Startup companies have three phases of growth; 1) internal, 2) external (market), and 3) ‘GAP’ growth; i.e. the GAP is the potential growth opportunity space/time between internal growth, and growth in the market. Bootstrapping efforts ‘in the GAP’ may provide some ‘market growth’ opportunities for a new company.

When the business’s activities cross-over into the ‘market space’, Bootstrapping opportunities decrease greatly. Generally, businesses that have, or are developing an end-product (not a service), usually have specific Bootstrap issues to deal with.

Most Bootstrapped businesses use sweat-equity labor to design, engineer and/or manufacture their products. The concept of sweat-equity works fine for engineers and internal marketing and sales, or finance but many other types of labor don’t have the personal luxury of being able to work for free. And external marketing people and companies all want to get paid!

Time to completion is also a very important factor in the successful use of Bootstrapping. Sweat-equity labor usually has an undeclared tolerance for how long it can wait until a startup is at the stage where it can pay wages. This time will vary as a function of the individual but success in less than two years would not be an unusual expectation.