Bootstrapping

THIS NOTE IS UNDER CONSTRUCTION

Bootstrapping is a term that has been used to describe a wide range of funding choices and sources, the general spirit of which are to enable either (a) the business to stay afloat, or (b) the initial founders to retain all or at least a significant proportion of their initial equity by sourcing funds from inside (i.e., the founders themselves or the cash flow of the firm) rather than outside the venture (i.e., investors, banks, etc.). Or both.

While different authors have characterized bootstrapping as either equity, debt, or some other source of financing, it is more honestly the case that bootstrapping could engage any and all of these sources of funding (e.g., debt through credit cards, mortgages, IOUs; additional equity purchased from savings, funding primarily through cashflow from operations).

Therefore, bootstrapping will be treated in theses Notes as a general approach to financing rather than an independent source of financing.

Bootstrap methods

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Bartering

Once in startup mode and short on cash we tend to trade whatever we can offer for whatever we need.  We trade accounting assistance for web site development, flowers, or whatever else it might be that we have.  While official statistics are hard to come by, it is probably safe to say that the majority of startups will engage in bartering at some point in their lifecycle.

Unfortunately, we can trade these sorts of obligations with or without deep regard for the implications—whether organizational, strategic, or tax in nature.  In excess, you become a firm that has no real cashflow—your business model is based solely on bartering!

Therefore, as with many things in life, it is wise to barter in moderation only.

Borrowing (personally)

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Investing (personally)

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Bootstrap reasoning

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Nature

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Necessity

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Valuation

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Conclusion