Bootstrap: Using your own money or resources to start a business, eliminating debt or equity positions and increasing the future value of the business.

Bootstrap: Smart.

I spent some time with a long-time friend and entrepreneur who I’ve funded in the past. He’s working on a new company that I think is really neat and I’m already a user of. He called me for feedback on his fundraising strategy as well as to see if it’s something that we’d be interested in investing in.


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Bootstrap: Using your own money or resources to start a business, eliminating debt or equity positions and increasing the future value of the business.

Bootstrap: Smart.

I spent some time with a long-time friend and entrepreneur who I’ve funded in the past. He’s working on a new company that I think is really neat and I’m already a user of. He called me for feedback on his fundraising strategy as well as to see if it’s something that we’d be interested in investing in.

It was outside our themes and different than the type of business we invest in. Given our long relationship and the fact that he’s an awesome entrepreneur, I squinted hard at one of our themes, turned my head sideways, and decided to take a look. We spent a few days applying our process to it (each partner touches it and we give each other real time qualitative reactions) and quickly realized that it really wasn’t something for us as it was far outside anything that we felt like we could help much with beyond money and moral support (which my friend is going to get from me anyway.)

So, I sent my friend a note with my explanation for why we are passing. I offered to help with introductions because (a) he’s an awesome entrepreneur, (b) it’s a very fundable business — just not by us, and (c) I have a lot of confidence that he’ll build a successful business and there are several VCs who I know that I think would like what he’s working on.

His response was dynamite. It was:

No sweat. I knew it was a longshot, so I appreciate you even considering it. I know how many deals you have to pick from. I’d like to take you up on your offer to help us get funded, but I have a better idea … help us avoid the need for funding (700 clients gets us to profitability).”

He then went on to detail a handful of things he’d like me to do assuming that I’m a happy user of his product. All of them are easy, low maintenance for me, and in several cases actually benefit me.

I love that my friend is much more focused on ramping up his customers than raising money. It’s easy to get lost in the soup of “X company raised $Y” and forget that it’s not about fundraising, but building a business. When I think of some of my favorite TechStars companies, such as Occipital, they bootstrapped for several years before raising any money (well documented in the book Do More Faster) and even then could have easily built their business without raising any money.

Don’t forget to bootstrap.

Comment by Niko
The vast majority of the entrepreneurial world bootstraps, but in some sectors of the startup world (e.g., this VC focused tech sector) it seems odd to avoid outside, equity-based financing. Even within this VC focused sector of the world, many companies would be better off using debt funding (internal or external) instead of equity financing, even if just as a seed round. Many people like to use their VC for help in staffing and expertise, etc., but in many cases, if your existing team doesn't have the talent and experience to get beyond the early stage, you might just not have a good enough team regardless of who is financing you.

My company funded with internal debt, then some external bank debt, and was profitable before we ever thought of approaching a VC. Now, we're self-sustaining, and we've got VCs calling us constantly attempting to find some reason we need their money. We may take them up on it just to let some of our partners divest and to expand our software staff, but on terms dictated by us... Bootstrapping can provide fantastic negotiation leverage.
November 2011
Comment by John Evons
This is why I respect you as a VC. I've always believed in the value of bootstrapping and it has taught me several invaluable lessons that I may not have learned on someone else's dime. There is no glory in giving up equity for capital, you should do it because you've exhausted all other alternatives. On the the other hand, there is an incredible amount of satisfaction in turning down money because you've built a sustainable business.

As entrepreneurs, we need to build businesses for the future rather than for the exit.
November 2011
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