Bootstrapping comes down to three simple strategies:
Friends and Family
A common source of funds is borrowing from "friends and family". People who know you are more likely to give you money to help you start your venture.
There are a few things to keep in mind when obtaining friends and family money:
Although friends and family money does have its drawbacks, the reality is that early in a new venture, it may be the only money you can get beyond your personal resources.
Keep your Day Job
One option is always to keep your day job while working on your startup during weekends and evenings. That has the advantage of keeping your salary. It has the disadvantage that you're only working on your startup part time, so headway will be slow. Also, be sure to talk to an attorney about any employment agreements you've signed with your current employer. You'll want to make sure that you have clear ownership of any ideas and/or product designs that you develop on your own time.
Savings, Credit Cards, and 2nd Mortgages
Most entrepreneurs start out by self-funding. In other words, your using your personal savings and credit cards to fund the company. Those who are fortunate enough to have substantial personal financial resources can potential fund a company for quite a period of time. But many people with relatively limited resources still begin their venture with funding from savings and personal credit cards, because at the beginning it is often the only funding available.
Only you can decide what level of self-funding you can responsibly afford. It's certainly a good idea to look at your available resources, plan your cash requirements, and go into the venture knowing exactly how long you will be able to self-fund. If you're approaching your self-funding deadline with no other funding options in sight, it may be time to consider looking for a job instead of starting a company!
Organic Growth (i.e., fund your company from revenue)
Funding your venture from revenues is, for many reasons, a very attractive option.
But how can this apply at the very beginning, before you have revenues from the product or service you plan to develop? It's typically through consulting, contract work to develop a product, or getting early purchase orders from a key customer.
One option that some companies have pursued is to obtain early revenues by providing consulting services. If your startup team has a skill set that is in demand and that can be provided in a consulting model, then you can potentially fund part or all of your people expenses through consulting revenues, while working part time on developing a product. Even better, if customers are paying you to develop Intellectual Property (IP) that relates to a product you are developing, and you're able to retain the rights to that IP, then you are using consulting revenues to directly contribute to product development.
There is a danger. Clearly, doing consulting work reduces the time available to develop your product or service. Your headway will be slow, and your time to market longer than it would have been if you'd been able to focus on the business. That can cause problems and it certainly increases the risk that your startup will not be successful. But the advantage is that you have a funding source that doesn't involve dealing with investors and selling a substantial percentage of your company. And the reality is that it's what many entrepreneurs must do to have money to eat and pay the rent.
Early Purchase Orders
Even if your product isn't ready to ship yet, would a customer consider giving you a purchase order for a certain number of units of your product in advance, with at least a partial pre-payment? In such a case, the customer is funding you. That can be a real win-win, if your company gets the funding it needs, and the customer in return also gets an advantage such as early-access to technology before their competitors get it. Another potential advantage is for the customer to have strong input to the product-development process, ensuring that the resulting product will meet the customer's needs.
The SBA provides numerous programs to support small businesses. The SBA Programs page is a good place to start exploring (see Government Resources). Some of the loan-related programs include:
The SBIR and SBTT programs provide grants to small business for technology development
Another source of government funding information specifically for the Dept. of Defense is:
State of Oregon Programs
The Oregon Economic and Community Development Division (OECDD) offers several loan and loan guarantee programs to small businesses. For more information see the OECDD website.
Here is a summary of their programs:
Oregon Regional Programs - Mt. Hood Economic Alliance
Look into regional economic development programs in your area. For example, the Mt Hood Economic Alliance is a partnership between Clackamas, Hood River and Wasco counties that administers the Regional Investment and Rural Investment Programs which fosters and promotes economic development.
A region of rural geographic and economic similarities, Clackamas, Hood River and Wasco counties also share a common connection to the urban Portland metropolitan area. Formed in 1993, the Mt Hood Economic Alliance has adopted a vision of
"Improve the region's quality of life by addressing local needs and priorities and providing a balance of opportunities for economic growth and long term prosperity through economic diversification and job creation for the current population."
Over the last 6 years, the Alliance has distributed over $3.5 million in Regional Investment and Rural Investment lottery funds, provided grants or loans which resulted in the creation of 214 new jobs and leveraged $13.6 million in Federal, state, local and private funds.
Priority for MHEA is the creation and retention of jobs. Priority is given to those business development projects that create or retain better than average wage jobs in the agriculture, light manufacturing, recreation equipment, technology or tourism industries.
MHEA, as a source of "gap" financing, is also looking for projects that leverage other sources of business development capital.
MHEA provides 3 types of funding:
For more information, see the
Mt. Hood Alliance website. Line of Credit
When you are getting into revenue, a bank may be willing to provide you with a line of credit. Or if you receive venture funding (or are close to receiving venture funding) then a line of credit with a venture-friendly bank becomes an option. (See our Service Providers list for a list of venture banks.)
When you have revenue, you may be able to work with a bank to finance your receivables (i. e., they loan you money based on the fact that you have a customer who bought your product and will pay you in 30 or 60 or 90 days).
Leasing is one of the few sources of debt financing that is available to an early-stage startup. It conserves cash, so it's worth considering.
Even after you have purchased equipment and furniture, it's possible to have a leasing company purchase those assets from you, and lease them back too you. Although there are benefits to owning your furniture and equipment, it's also a big use of cash. And cash is the one thing you must conserve. (You'll need more than you think.) See our Service Providers list for a list of some of the leasing companies in Oregon.
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