What is bootstrapping?
Bootstrapping is a type of start-up financing which is carried out entirely without external investors. The term „bootstrapping“ is derived from the English word for bootstrap, „bootstrap“. This refers to the history of Baron Munchaus, who freed himself from the marsh without any help whatsoever by pulling himself by the hair. It is also about bootstrapping, as the founder, to finance the financing itself. Accordingly, the start-up strategy and the implementation of the start-up project must be adapted to limited financial resources and resources. In order to reach break-even as early as possible and to achieve a positive cash flow, start-ups should start as soon as possible with the operational business. The main objective is to maximize returns while minimizing costs. Bootstrapping is therefore particularly suitable for start-ups, which are based on the low-budget model.
Requirements for bootstrapping
In contrast to self-financing, founders have to have a start-up capital, ie their own financial resources, for a bootstrap financing. In addition, they should have access to external sources of financing for outside capital and equity, as well as collateral in order to be able to provide leverage financing if necessary. Overall, these possibilities can be very limited so that the financial scope for the start-up project is also very limited. The main financing instruments used in bootstrapping are founder capital, friends- and family capital, loans from banks, supplier loans, public funding and leasing.
Bootstrapping founders remain financially independent
One of the most important advantages of bootstrap financing is independence. Not only does founders at bootstrapping remain financially independent of investors and banks. In addition, they do not have to assign control, information or participation rights to any shareholders. In this way, entrepreneurs learn to work efficiently and economically in the face of the scarce financial resources and time constraints. This fact, that a start-up is funded from its own resources and grown without the help of others, also impresses potential investors, should the borrowing of borrowed capital be necessary at a later stage. Founders should be aware, however, That this form of financing is accompanied by a high performance pressure and an enormous vulnerability in the case of incorrect decisions. The focus should therefore be on thrift, product development, personnel policy and outsourcing.