Sourcing capital for your startup is never easy, especially prior to product completion and before the proof-of-concept the traditional venture investors are looking for is done. Oftentimes, the only way to get your business from just a concept on a piece of paper to a venture-backable business is to bootstrap your efforts, via whatever means necessary.
Below is a summary of some of the most-used bootstrapping techniques.
Limit Product Scope. Always start by building a minimum viable product to get something quickly and cheaply into the market. Cut back on any unnecessary features and functionality that add up on costs and slow down the launch. Don’t try building a “Rolls Royce” product out of the gate, when a “Toyota” will work just fine to start.
Personal Assets. Tap into whatever cash resources you have access to, from your cash accounts to credit cards to home equity loans to selling other investments. The less cash you raise from outsiders, the more your personal stake will be worth, especially during the “infancy” stage of your business when valuations will be at their lowest point.
Co-Founders. Co-founders can be a great source of cash investment or sweat equity from people who believe enough in your product to work without a cash salary. Don’t think you need to build your startup by yourself. Find others who share your dream and complement your skillsets.
Friends & Family. Sometimes it is easiest to raise capital from the people that know you best. These people can vouch for your personal drive and skillset much better than a stranger investor. But, be clear with them upfront that they could most likely lose 100% of their investment in a risky venture and not to invest more than they feel comfortable “gambling.”
Vendors. Sometime startup vendors are willing to trade all or a portion of their services for equity. This is a great way to make a $100K tech be billed as a $50K tech, as an example. Re-read Lesson #115 for when it is best to trade equity for services. And, even if they require cash, maybe they can set-up a payment plan as a way to help.
Angel Investors. If you can uncover them, there are plenty of rich individuals looking for the next big thing. The problem is finding them. Re-read Lesson #5 for the best techniques for finding angel investors.
Startup-Investor Marketplaces. There are some great sites like AngelList and Gust that have created networking sites with startups on one side and angel investors on the other. The problem is getting your startup found within the clutter of other startups. Re-read my case study on how StyleSeek successfully raised capital through AngelList.
Crowd Donations Sites. Sites like KickStarter and Indiegogo have even made it easy to raise capital via donations from a crowd, without giving away any equity in your business. This works best for “edgy” consumer products businesses, where donating consumers can get insider access to the first products built. Re-read my case study on how Pebble successfully raised $10MM through KickStarter.
Crowdfunding Sites. With the passing of the Jobs Act in 2012, which legalized startup investing for mom-and-pop investors, a whole slew of crowdfunding sites are in development, like RocketHub and EarlyShares. Find the ones that best fit your industry. Re-read Lesson #111 on crowdfunding startups.
Small Business Grants. Sometimes free grants are available if your startup is helping to solve a bigger problem (e.g., healthcare, education). Check out Grants.gov, to see if any grants are available in the market you are serving.
Small Business Loans. Working with banks for a startup is not usually advised, given that banks can be so conservative. But, some banks are more startup friendly than others. Silicon Valley Bank is one of those banks. You may be able to get a $50,000 startup loan, basically set-up like a new credit card account.
Venture Debt. Similar to bank loans, there are loans from venture debt companies like Western Tech. These firms typically work best for financing securable technology asset purchases, with financial terms very similar to credit card debt.
State Tax Credits & Programs. In the unlikely event your startup is generating a profit, be sure to apply for any state tax credits that may be available for startups, to reduce your tax bills or offset salaries from new jobs created. Re-read Lesson #113 for more information on state tax credits and other programs for startups.
Free/Discounted Resources. Always keep your eye out for free or discounted resources for startups. Don’t pay for consulting if you can get free mentorship from a peer. Don’t pay for rent if you can hangout out at a free, shared meeting place like Starbucks, Tech Nexus or 1871. And, check out preferred vendor discounts for startups negotiated by organizations like Startup America.
The key for being a good startup CEO is learning how to stretch pennies into manhole covers. Hopefully, this post helped you learn how to best stretch your very limited cash resources and find cash resources from previously unknown methods.