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The Founder's Guide to Fundraising

Companies That Succeeded With Bootstrapping by Ian Harvey

Source - https://www.investopedia.com/articles/investing/082814/companies-succeeded-bootstrapping.asp

TL;DR - Explanation of bootstrapping (definition, pros, cons, etc) and examples of successful bootstrapped companies

Helpfulness - 5

Tags - bootstrapping, pros and cons of bootstrapping, self financing, initial capital, successful bootstrapped startups, GoPro, TechCrunch, Plenty of Fish, Basecamp, GitHub

Questions answered:

  • What does bootstrapping mean?
  • What sources of capital are available to bootstrapped companies?
  • What funding stages do bootstrapped companies usually grow through?
  • What do entrepreneurs need to do to achieve success by bootstrapping?
  • What types of companies are suitable for bootstrapping?
  • What are the advantages and disadvantages of bootstrapping?
  • What are some examples of successful bootstrapped companies?

Summary:

  • Bootstrapping is a process whereby an entrepreneur starts a business with no outside capital and grows it using limited resources/money.
  • Entrepreneurs who bootstrap their businesses might rely on sweat equity, customer funding, owner financing, or personal debt for initial capital.
  • Bootstrapped companies usually grow through three funding stages:
    • 1) Beginning stage: the company relies on personal income, savings, debt, or borrowed money from friends/family.
    • 2) Customer-funded stage: the company relies on customer payments
    • 3) Credit stage: funding specific business activities (e.g. improving equipment and hiring staff) is required - the company takes out loans or may even find outside investment for expansion.
  • To achieve success by bootstrapping, entrepreneurs must execute a big idea, focus on profits, develop skills, and become a better business person.
  • Early-stage companies and serial entrepreneur companies are suitable for bootstrapping
  • Advantages of bootstrapping are: low cost of entry, ownership and control over the company, and ability to focus on developing the company.
  • Disadvantages of bootstrapping are: cash flow issues, equity issues among multiple founders, higher risk of failure, and personal stress.
  • Examples of successful bootstrapped companies include: GoPro, Inc., Basecamp, GitHub, TechCrunch, and Plenty of Fish.
    • Go Pro, Inc:
      • Manufactures small, body-worn, high-definition personal cameras.
      • The founder, Nick Woodman (who had previously built two businesses that failed), raised his initial capital of $10,00 dollars by selling bead and shell belts out of his van.
      • Consistently grew revenue and went public in 2014 with an IPO valued at $2.96 billion.
    • Basecamp:
      • A web application company that produces simple, focused software
      • Started as a cash-strapped startup.
      • Developed many software products (both free and paid versions).
      • In 2005, produced its flagship product: Basecamp, a powerful tool for companies looking for a project management app.
    • GitHub:
      • A web-based hosting service for software development projects.
      • Started as a weekend project.
      • Reached the 4 million user mark by 2013.
      • 40 million registered users worldwide as of Aug. 2019.
    • TechCrunch:
      • Founded by a successful serial entrepreneur, Mike Arrington (along with Keith Teare).
      • Became the the epitome of technology blogs online.
      • Sold to AOL for a rumored $30 million in 2010.
    • Plenty of Fish:
      • One of the most popular dating sites in the world founded by Markus Frind who started the business from his apartment.
      • Over 150 million registered users worldwide as of Feb. 2020.
      • Acquired by Match Group in 2015.

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