Sourcing capital for your startup is never easy, especially when you are pre-product completion and before the proof-of-concept the traditional venture investors are looking for. Often, the only way to get your business from a piece of paper concept to a venture-backable business is to bootstrap your efforts, via whatever means necessary.
Below is a summary of the some of the most-used bootstrapping techniques:
1. 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.
2. Personal Assets
Hate spammy ICOs and crappy cryptocurrencies?
So do we.
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 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.
4. Friends & Family
Sometimes it is easiest to raise capital from the people that know you best, and can vouch for your personal drive and skill set, much better than a stranger investor can. But, be clear with them upfront that they could lose all of their investment in a risky venture and not to invest more than they feel comfortable “gambling” with.
Sometimes, 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 build a $50K tech build, as an example. Read my post on when it is best to trade equity for services. Even if they require cash, maybe they can spread out payments over time to help you.
6. Angel Investors
If you can uncover them, there are plenty of rich individuals looking for the next big thing. The problem is finding them. Read my post on best techniques for finding angel investors for more details.
7. 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. Problem is getting your startup found within the clutter of other startups. Read this case study on how StyleSeek successfully raised $1MM through AngelList.
8. 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. Read this case study on how Pebble Watch successfully raised $10MM through KickStarter.
9. 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 can now be considered, like RocketHub. Find the ones that best fit your industry. Read this post for more details on crowdfunding startups.
10. 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.
11. Small Business Loans
Working with the banks as a startup is not usually advised, given how conservative the banks can be. 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.
12. 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.
13. 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. Read this post for more information on state tax credits and other programs for startups.
14. 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 or 1871 in Chicago. 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 man-hole covers. Hopefully, this post helped you learn how to best stretch your very limited cash resources and find capital sources from previously unknown methods.
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