Kevin Spreng, one of the moderators for the Minneapolis Bootstrapper Breakfasts®, forwarded this article from VC Experts on “Sources of Capital – Bootstrapping Sources And Techniques from VC Experts.” The article outlines techniques in the following areas:
- Friends and Family Loans and Investments
- Alternate Revenue (e.g. Consulting Revenue)
- Customer Prepayments or Discounting Accounts Receivable
- Supplier/Vendor Financing and Extended Terms
- Customer and Supplier Barter Arrangements
- Revenue and Pricing (price increases can provide funds)
- Customer and Supplier/Vendor Investments
- Deferred Employee Compensation
- Outsourcing (e.g. payroll & benefits, manufacturing, distribution and selling)
- Working Capital Management-Inventory, Accounts Working Capital Management-Inventory, Accounts Receivable, and Accounts Payable
- Operating Profit
Although the authors’ sympathies seem to lie with professional investment as the best source of startup capital there are some good overview insights for bootstrappers:
“Bootstrapping is the term used for nontraditional funding of a company using a series of interim techniques and sources to move from one company stage to another…The technique is routinely used by start-up or early stage businesses that do not have institutional or professional investors, keeping in mind that the great majority of start-up and emerging growth companies do not obtain funding from institutional or professional investors.”
“From the perspective of the entrepreneur or businessperson, bootstrapping may be viewed as a resourceful or creative way to address the financial need of the business for an interim period using the cash flow of the business and minimizing the use of external capital until the cash flow of the business can support ongoing operations. Given that excess funds are rarely available in this situation, bootstrapping may have the benefit of instilling financial discipline in the company’s leadership team and processes as they focus on managing cash flow and all of the influencing factors; they grow accustomed to running a tight operation.”
“Most entrepreneurial ventures are bootstrapped to some extent. Sources of funding come from anywhere the entrepreneur can find it. Much of the funding is through the use of services of other companies who might have an interest in the product or service if fully developed or launched. Entrepreneurs are creative, and how they structure relationships with other companies and obtain services is as varied as their personalities. … A word of advice: Never lose control of the intellectual property or enter into a relationship that cannot be reshaped into an independent entity capable of demonstrating growth, creating future value, and being financed.”