Sources of Bootstrap Capital

How can you start a great business with no money down? How do you get 'table stakes' so you can have a place at the table too? The rule today is, if you have cashflow, you will get financed, not the other way round.

There really are no 'no money down startups'; there are only those with little money down. In reality, every business requires some investment. What we are talking about is starting a business with an amount of money that is really de minimumus with respect to the size of the opportunity. Mark McCormack started world leading sports management business (IMG, International Management Group) with $500, his law degree and Arnold Palmer as his first client. Mind you, it doesn't hurt if your first client is an Arnold Palmer.

Probably only 1% of all startups will ever get any funding from VCs; that means that 990 out of 1,000 new enterprises are forced to use bootstrapping as their only means to success. Some observers feel that boostrapped businesses, ones that start with nothing, are actually or can be better businesses because they are more focused on results as well as efficiency and economy of effort. They certainly appear to be hardier if they manage to get by their first few years.

To read more about the futility of most VC funding or to learn where VC funding might make sense, click here: Venture Capital Futilty.

Here are some sources of Bootstrap Capital:

1. Soft Capital: Mom, Dad and rich Uncle Buck-- a friends and family round either formally or informally organized

2. Home equity loan

3. SBL (Small Business Loan)-- GOC Program or other government sponsored sources of start-up capital like the Ottawa Community Loand Fund

4. Future customers, clients or launch clients (e.g., homebuyers in Ontario can be asked for up to $20k in advance).

5. Future suppliers.

6. Strategic partners. (like Ogden was for the Ottawa Senators)

7. Micro capital lending and grant programs

8. Rights fees and sales (for example, Molson's purchase of pouring rights for the Corel Centre or the Civic Centre after the City of Ottawa was awarded a franchise by the NHL in December 1990 but before they commenced play in October of 1992 or selling PRNs (Priority Registration Numbers) during the Bring Back the Senators campaign of 1990 for $25 each, which gave each PRN holder the right to purchse a season ticket in their preferred location in numerical order, if the team was awarded to the City of Ottawa in the NHL expansion round of December 1990. Note, however, that there were no refunds if they were not successful. For $25 you got the right to purchase a season ticket and a bumper sticker and a cool looking certificate too.)

9. Patent or other IP licensing fees (e.g., Noma Industries and LED Xmas light strings).

10. Consulting

11. Partners

12. Debentures

13. Financial leasing

14. Receivables factoring

15. Vendor financing (30, 60, 90 days or more)

16. Sponsors (see the example of 15,000 PRNs, 500 Corporate Sponsors and 31 Original Corporate Sponsors for the Ottawa Senators)

17. Trading activity: buying low and selling high, taking advantage of arbitrage opportunities (like finding out what percentage of dot-CA holders do not have their dot-COM equivalents and the dot-COM equivalents are available and then selling them the dot-COM extensions), building-businesses-to-sell, buying and selling and buying and selling and trading up, ...

18. Credit cards

19. Business Plan Competitions like the Wes Nicol Competition or the Celtic House Competition

20. Extracting upfront value from your lease for office space-- an example of a services company that got $800,000 upfront.

21. Reverse Pledging of Assets (e.g., O & Y)

22. Co-guarantor: borrowing someone else's stronger credit rating (e.g., Corel Centre Suite Leases pledged for constrcution financing, Mom or Dad co-signing a loan, ...)

23. Accretive buying: buying another company with the target company's balance sheet as colateral where you end up with more cash than before (e.g., buying the Mighty Ducks for $50m-- $25m to the NHL and $5m per annum for 5 years to the LA Kings; then, say, borrowing $35m against the asset and receiving a $20m leasing inducement to enter into a 20 year lease for Arrowhead Pond).

24. Accretive Selling: sell products or services with financing in place where you end up with more cash after the sale than before (e.g., Leon's don't pay a cent until .... (OAC). Leon's than turns around and sells the sales contract ofr cash.)

25. Employee ESOPs (Employee Stock Ownership Plans).

26. Pre-sold services. (For example, here is an example from Craig deSchneider, a student in EC 491 (2003): "In looking for some start-up capital for our automotive related business, myself and my partner offered potential investors future discounts through our business. In selling automotive parts, we had accounts set up with distributors, accounts which could only be set up through having a business license, tax numbers, and some negotiating, so the average person off the street does not have access to these discounts. We set no specific investment amounts, simply the most the person could afford. We kept these contributed amounts a secret amoung the different investors as we offered them all the same return. Therefore, in return for a fair investment, we extended to our investors cost prices for all of their future purchases through our company. The only limit we set on this agreement was that the investors' annual purchases could not exceed our company's sales revenue from our average monthly sales figure (not including cost purchases made from investors). The overall idea was to provide our investors a very fair return on their investment, and at the same time, these investors would promote our company. Why you may ask, well the greater our monthly sales were, the greater the amount of goods they could buy for themselves at a cost price." Ed.: Basically, Craig and his partner turned their investors into customers and their customers into investors. Nice going.)

27. Collectibles Auction. Here is a new one. Michael Moshier put the original version of his SoloTrek flyer up for auction on eBay, hoping a museum would pick it up. It didn't even fly but by Janaury 12th, 2003, the bidding on eBay had already reached $6.5 million USD-- money he plans to use to fund his Trek Aerospace startup. Cool.

More Sources of Bootstrap Capital

No Money Down Startups

Bootstrap Marketing

Small Business Management Front Page

Entrepreneurialist Culture Front Page