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Bootstrapping
This year I'm done begging. It's over. I give up. The VCs can have this place. Good luck. I can't afford to wait for you. We have to find another way to finance the leading edge. There is another way: bootstrapping. The idea is that the founders of the company put down their hard-won savings to get a company off the ground. They start with a small investment, start shipping product (or providing services) early, and finance growth primarily through internal cash flow. These are the guys you hear about who financed the business by maxing out six credit cards and taking out an equity line on the house. Or by buying $100 worth of inventory and taking things from there. Bootstrapping can be better than VC in a few ways. First, the entrepreneur is worried about cash flow rather than stroking investors. Note that cash flow is more important to the business than investors. Second, the entrepreneur will keep savings in mind. Rather than blowing wads of cash on great office space, fancy desks, comfy chairs, you might have a bunch of guys working out of someone's living room. This cash would probably be more effectively allocated in other ways if the spender had to think twice about how much cash was left. Third, the entrepreneur is free to explore different avenues and change direction as necessary without having to go back to his investors and ask permission. This can make a bootstrapped company more nimble and able to take advantage of new opportunities as they open up. It is true, however, that some businesses will require a much larger capital investment than is practical for most of us to bootstrap ourselves. If it doesn't come from conventional VC, I see the options as: Angel investors / high-net-worth inviduals; large corporations; government research grants; or partnership with educational institutions. The first two are more like VC: they are looking for a place to put their cash that will provide a good ROI. The latter two are often more interested in the outcome on a fundamental level. Being associated with VC can also provide a visibility boost -- they have contacts in the industry and can give some promotion that can't really be bought. In the end, though, the effort put into attracting VC might simply be better spent on guerilla marketing tactics. The best way to get financing is no secret: sell stuff, get paid. We're boostrapping. I'll let you know how it goes. comment []
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