The act of bootstrapping may be a physical impossibility (the term was even used figuratively in the early 1900s to refer to an impossible task), but it’s a very real practice when it comes to financing a business.

Founders who bootstrap use existing resources to get their business off the ground. They may turn to savings, friends and family money or revenue cash flow to grow and scale. 

In today’s climate, where seeking venture capital (VC) is often the norm for startups, bootstrapping may happen before a company seeks equity funding – such as seed funding or series A. 

It can also be the sole method in which founders scale their companies – and it’s undeniably  the smartest. Although big funding announcements often garner the most fanfare, they don’t result in the ultimate ideal for founders: retaining ownership of their company as it grows. The founders of Atlassian, for example, bootstrapped without taking venture capital and still hold over 75 percent of their company that’s now worth tens of billions. 

Why do founders bootstrap?

Founders who bootstrap often understand how beneficial it is to retain full control of their company. Traditional equity financing can be constraining, with the deal parameters often orchestrated only to maximize likely profit for the investors. That’s not a knock on VCs, but it’s simply the way venture capital has to operate in order to make financial sense.

On that same note, it’s important to understand the characteristics that VCs often look for in founding teams and early-stage companies. In many cases, founders can’t always fulfill these strict criteria. For example, if exponential growth isn’t on the immediate horizon for a company, VCs simply may not be interested. The same is true if a company’s technology isn’t disruptive enough, or if the founding team is composed mostly of “idea people” versus “technical people”. Investor and entrepreneur Jason Calacanis explains this last concept well in this podcast episode, touching on the idea that technical founders’ ability to oversee the underlying tech of a product is attractive to investors.

The bottom line is that the bigger the risk a VC takes, the bigger the potential payback must be. For some companies, this isn’t a promise they can make. Does that mean the company isn’t worth financing? Of course not. It simply means that venture capital isn’t the best option.

How revenue-based financing can support bootstrapping

Let’s say you’ve built your MVP using your existing resources, you have some initial sales and you’re ready to take things to the next level. Venture capital isn’t looking like the best option for you, but you definitely need some working capital.

These circumstances require a smarter method of financing. On top of bootstrapping, companies in the eCommerce, subscription, marketplace and SaaS spaces now have the option to apply for revenue-based financing (RBF) to support their growth.

A type of non-dilutive funding, revenue-based financing is near-instantaneous capital that you repay over time solely as a percentage of your company’s future revenues.

So, what does this mean for you in the early stages of your business? It means you have a source of funding to boost efforts in marketing and sales, without having to give away equity or pay back rigid amounts that you can’t afford. You get resources to grow further, while ensuring you only make payments that are proportionate to your revenue. For example, founders might choose to use funding to support their inventory or their marketing efforts. 

This is a game changer for founders, and it suddenly means that bootstrapping is a real and accessible option. It means they have another tool in their arsenal for growing a business without turning to less-than-ideal financing methods. 

That being said, taking an advance through revenue-based financing doesn’t rule out venture capital as a source of funding in the future. Plenty of companies bootstrap and utilize RBF before reaching a point in which VC makes sense for them.

Are you keen to have more working capital while bootstrapping?

If your company has repeatable expenses and could benefit from near-instantaneous working capital, you might want to consider an advance through revenue-based financing to support your bootstrapping.

In that case, let us help you with an application for your advance. Drop us a line at [email protected]