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•How can you start a great business with no (or little) money down? •How do you get ‗table stakes‘ so you have a place in the game?
•CDN Banks lend only to people who don‘t need the money •Only Grameen Bank led by Nobel Peace Prize Winner Dr Muhammad Yunus lends money to people who need it •Sir Terence Matthews: ―We‘ll lend you $7.5m provided you establish a cash collateral acct of $7.5m for Newbridge •Only uses CDN Banks to clear funds
•The rule today is, if you have cashflow, you will get financed •Not the other way round •Mark McCormack started IMG, International Management Group, with $500, his law degree and Arnold Palmer as first client •Doesn‘t hurt if your first client is Arnold Palmer
Bootstrap Finance •Golden Rule? •S/he who has the Gold. Rules .
Bootstrap Finance •Probably less than 1% of all startups ever get any funding from VCs •Means that at least 9.900 out of the next 10.000 new enterprises will bootstrap •Stronger enterprises •More focused on results and clients .
pre-sales. deposits. consulting. Bootstrap capital allows the ownership to keep control of their own enterprises and not lose them to VCs and other debt or equity holders. home equity loans.Bootstrap Finance •‗Bootstrap Capital‘ on UrbanDictionary. guarantors. . supplier credit. this is how most start-ups actually capitalize themselves. Sources of bootstrap capital include: soft capital (Mom/Dad/Rich Uncle Buck).com Also known as self-capitalization. receivables factoring. launch clients and more. retainers. progress payments. partners. credit cards. sponsorships.
everyone understands how many season tickets or hot dogs or signs have to get sold .‖ •All new personnel in his Wesley Clover startups spend six months in sales •Same thing at Ottawa Senators—start everyone in sales •Next time star player or agent wants extra million.Bootstrap Finance •Terry Matthews again: ―Get close to the customer—early and often.
eqjournalblog. See: http://www. Other People‘s Money.‖ To read all of Terry‘s 10 Rules.Bootstrap Finance •Other ‗Terryisms’: ―Follow the fastest (least effort) route to revenue.‖ ―Pursue only those goals that are consistent with the overall objectives of the enterprise.com/?p=780 .‖ ―Leverage your investment with government grants and OPM.
Bootstrap Finance •Is lack of access to capital really main barrier to entry for entrepreneurs? •More of an excuse in my view .
b) more inclined to be put to wise use by (now) experienced entrepreneurs. Most startups should be much further along in their development before they go after VC funding. if that is what they choose to do. Most startups are in industry sectors that don‘t appeal to VC funds anyway. Finally. Most business startups don‘t have the growth prospects to attract VC funding. if they ever do. they are on a much more even footing with respect to negotiating a fair agreement with VCs.Bootstrap Finance The reasons most VCs aren‘t interested in most startups are as follows: 1. . it is much more efficient for Canada if VCs fund more mature companies that are at a stage where large capital injections are: a) less risky. If their business has real cashflow and real customers and clients. 3. 2. 4.
who was a sophisticated developer originally from Germany. Tobi.com‘s experience •Established by Tobi Lutke and Scott Lake in 2005 •Original mission was basically to fund the guys‘ interest in snowboarding •Unhappy with then e-commerce offerings. built a better mousetrap using Ruby on Rails .Bootstrap Finance •Shopify.
exclusive priesthood •Friends started asking them if they could build online shops for them •What business are they really in? .Bootstrap Finance •RoR is an open-source web framework •Inspired choice– coding was no longer an indecipherable.
Committed Monthly Recurring Revenues– Holy Grail of Techdom . Software as a Service •They have CMRR.Bootstrap Finance •So typical–business plans or models introduced into RL (Real Life) transmogrify into something quite different when they greet first customers •Shopify‘s business model based on SAS.
3rd largest and oldest VC in US .Bootstrap Finance •Profitable in first 12 months •> 10.000 clients •Fastest growing e-commerce platform in the world (1. 2010– they take in $7m in VC funding from Bessemer Ventures.000s of new stores on their platform ea mth) •In Dec.
Bootstrap Finance •This is after they had established annual run rate of $135 million and become No. 7 on Canadian Business‘ List of Canada‘s Fastest Growing Businesses •Founders retain control •Doesn‘t hurt that Bessemer can intro them on 1st name basis to tech titans like Twitter. FB and Google .
Bootstrap Finance •―…we work in a business of tough competitors.‖ Jerry McGuire •When I was a boy. there were about 3 billion people on this planet and perhaps 20% participated in a modern economy •Now there are nearly 7 billion and probably 60% participate in the modern economy .
Bootstrap Finance •Good news– more people to sell to •Bad news– much more competition .
Bootstrap Finance •Eseri. •Leverages what money he puts in with GOC (Government of Canada) IRAP grants .com. Bill Stewart •Provides lightweight Internet-based (actually cloud-based) desktops using proven freeware •Eseri based in Ottawa and Montreal •Started with nothing •Bill still gives $1. started by PhD entrepreneur.000 per day seminars on project management software •Uses stock options to keep his core group of developers on the job.
it wasn‘t •Able to redeem it for more familiar currency and feed themselves and their families . script wld be worthless •Fortunately for workers and Toronto Maple Leaf fans.Bootstrap Finance •Great Depression of 1930s •King Clancy built old Maple Leaf Gardens same way •Paid his workers with ‗script‘ •If ‗Carleton Street Cash Box‘ failed.
number one source of finance for SMEEs in 2009 was supplier credit •Sometimes called Trade Credit (TC) •Amounted to $2.Bootstrap Finance •In the US.5 trillion .15 trillion •Dwarfed bank lending to SMEEs of just $1.
Bootstrap Finance •Suppliers want new enterprises to be successful—that way they will have helped create new client for themselves •Supplier credit and funding from your clients– cheap sources of capital and FAST .
Bootstrap Finance •Siavosh Noruziaan: Empire Fences and Decks •Order for new deck for $8.000 worth of materials from his suppliers who have extended credit .000 •Asks client for a deposit of 50% •Balance due on completion of job •Orders $5.
Bootstrap Finance •Now has $4.000 receivable •Enough cash on-hand to pay workers and himself and later pay his suppliers… .000 in cash in the bank and $5.000 worth of supplies on site •Plus $4.
•ROI and Vulture Funds are aiming for a ROE of ~ $40% •Today you get variable rate home LOC for just 2.Bootstrap Finance •What is cheaper—debt or equity? •Many people think equity is free •Not so •VCs want at least a 20% p.a.15% .
a few years later. 10% of your equity •You only have ten. you gave the developer $100k to do $10k worth of work . say.Bootstrap Finance •Say you need $10k worth of software development •Pay the developer in cash not. you sell the biz for say $1m. 10s to ‗give‘ away •If one day.
debt is (usually) much less expensive . say. still cheaper than most forms of equity •So now you know.Bootstrap Finance •Even if you use 2nd mortgage type debt. 8% to 12%.
Bootstrap Finance •But what is cheaper than debt? •It‘s supplier credit and launch client money! •They usually charge you nothing for it .
retainers and progress payments for free because they want to buy your products and services •And they want you to survive •And they trust you .Bootstrap Finance •Clients give you their money in the form of deposits.
•What is the most important thing in business (and life)? •Trust! •Marketing Brand Trust Sales
•Cash Conversion Cycle (basically, Accounts Receivable + Inventory – Accounts Payable) must be short or, better yet, negative •Means as sales grow, you generate cash instead of needing to raise more cash •Crucial to entrepreneurial, bootstrapped startups
•Fuel Industries •One of top three advergaming businesses •CCC is out of whack •Client base to die for: Pepsi, Coors, GM, MTV Networks, McDonalds Europe… •$1m orders •10% down, 1 year to complete, balance due: delivery + 30 days
Bootstrap Finance •Hire expensive developers •Build the ‗pipeline‘ •RBC calls their LOC •What to do? .
•Four Places to go for help •Shareholders and Directors •Employees •Suppliers •Clients ____________________________________ Possibly your competitors (co-opetition): eg Microsoft bailed out Apple to avoid more anti-trust
•All stakeholders want you to survive (but for different reasons) •For FI, clients to the rescue •Why?
•If FI goes out of business, competitors too busy to deliver their work on time •Prices will increase •Now, 30% down, two 30% progress payments upon achievement of milestones •Only 10% on delivery + 30 days •CCC is –ve, paid from ‗retainers‘ (like lawyers) •Faster they grow now, the more cash on hand
former Kanata City Councillor.000 per year and took about 200 hours of your time ($500 per hour)? •Richard Rutkowski.Bootstrap Finance •How would you like to own a business that made you $100. Best of Kanata •$600 per page to advertise in book/lots of pages •Books sell at retail for $20 each •Two main sources of revenues . REALTOR. Owner.
the cost of their ad is -$350! (Negative Cost Selling!) •What a great value proposition: BUY AN AD IN THE BEST OF KANATA FOR A –VE $350 .Bootstrap Finance •Each book buyer becomes a member and gets 10% off at all participating retailers using BOK CARD •―Secret sauce‖: his advertisers are also one of his main distribution channels •They buy books to sell to their customers at $20 and keep $10 •If a full page advertiser sells 100 books.
Bootstrap Finance •Another channel– charities and minor hockey/soccer groups buy the Books for $5 and sell them for $20 •Low tech •Richard can SELL •Richard is trusted •Advertisers pay 50% on signing contract and balance on delivery of books .
Best of Mississauga. Best of Manhattan! . Best of Orleans.Bootstrap Finance •Pre-sold enough advertising to pay for first printing and then some •Cash required to start BOK: -ve! •This biz is scalable •Maybe there is a market for: Best of Dartmouth.
2008 with more than $35 billion in revenues) used BC! •They bought the Mighty Ducks of Anaheim for $50 million in 1993 •Paid the NHL $25 million and Bruce McNall and the LA Kings $25 million. $5 million/yr.Bootstrap Finance •The Disney Company (Fortune 67. x 5 yrs– a payment plan! .
. another form of BC.000 •They had more cash > than < •This is called accretive buying.Bootstrap Finance •They weren‘t done yet! •They got a $20 million leasing inducement from Ogden to sign a long term lease at Honda Center (formerly Arrowhead Pond) •They secured a $30 million LOC based on the franchise value from a Lender •Cost of the Ducks? •–ve $20.000.
Bootstrap Finance •I could bootstrap a Lunar Colony! •Just ask me how! .
Canada and Russia •What if living in 1/6th gravity helped you live 20.Bootstrap Finance •There is a lot of real estate on the moon– it has a surface area of approximately 37.8 million sq. 40 or 50 years longer and let you boogie like a teenager too? . 30. kilometres •That‘s about the size of the US.
Bootstrap Finance LIVE FOREVER…! .
000.000 in revenue per year (18 trillion dollars.000 per month for their condos •That‘s $18.000.Bootstrap Finance •Now maybe I could convince 100. about 1.000.000.35 times the GDP of the United States)! •I would ask for one year‘s rent up front! •I could build a lot of spaceships and lunar condos with 18 trillion dollars! .000 people to move to my Lunar Colony when they turn 70 or 80 •I might charge them $15.
Bootstrap Finance •So don‘t tell me you can‘t pull yourself up by your bootstraps– you can .
Founder.com Kevin Rose made $60 million in 18 months How did he do that? a) JOB? b) Entrepreneurship? . Digg.Bootstrap Finance Kevin Rose.
I‘m going to leave.‖ Kevin‘s ex-girlfriend Kevin and his partner populated their site by CALLING 3.000 on launching this site instead of a deposit on a home for us.Bootstrap Finance ―If you spend our last $10.000 of their friends They didn‘t push on a string– an email campaign might have gotten them 15 users I wonder how she feels now? .
COM‘S DIFFERENTIATED VALUE? It is a new model for a newspaper uniquely adapted to the Internet It is not simply the online version of the New York Times or some classified advertising page transferred to the Internet It is a digital community made up of a fairly homogenous demographic—80% are male. mainly young techie readers Readers are also contributors Readers dig up interesting stories from all over the web and post brief synopses to the site and links to them whereupon other readers vote on them—the most popular ascend the page .Bootstrap Finance DIGG.
the marginal cost is practically zero) .com‘s cost for editors = ZERO Digg.Bootstrap Finance The site harnesses the competitive instincts of the readers/contributors to compete to see whose story will lead The site works because of its homogeneous demographic—contributors only post stories that will be of interest to the group The site is dynamic—leading stories change by the minute or hour Digg.com‘s cost for journalists = ZERO Digg.com‘s cost for headline writers = ZERO Digg.com‘s cost for distribution = ZERO (at least.
Bootstrap Finance Digg‘s sustainable competitive advantage is its business model and its readership You might be able to knock off its business model but it is extremely difficult to knock off its millions of dedicated readers which form a community The key is that the readership and community are relatively homogeneous and have similar interests .
Guts e.Bootstrap Finance Keys to success: a.com tough to knock off/beaucoup differentiated value c. Community makes Digg. Sound biz model: humans curate the news b. Scalable/Reversed out the work d. Bootstrap marketing that worked– did not need SUPER BOWL COMMERCIALS TO LAND 1ST CLIENTS! .
org/ECQTest/ ECQ(ns)TestAuto.htm Sold (Cutco) knives door-to-door! .Bootstrap Finance Craig Schoen. former student Winner of Wes Nicol Business Plan Competition Serial entrepreneur Hi ECQ Test Score: http://www.dramatisp ersonae.
Kijiji-Feed.com Irresistible value proposition Servers do the work! From his apartment! Financed by dealers– pre-sales.com Answer: www.Bootstrap Finance Problem: car dealers and REALTORS taking forever to upload their info to Kijiji. deposits Profitable from Month 3 .
In 2003. (now famous) online comic: Can‘t draw (he is a brilliant IT specialist).Bootstrap Finance Ryan North. . Only dialogue changes. an online dinosaur comic. he creates Qwantz. Six panels using clip art/characters that never move. day-to-day.com.
Bootstrap Finance .
Guinness Book of Records application– longest running comic strip where characters never change/move Quirky personality Revenue streams: merchandise sales/book sales/appearance fees/advertising by Project Wonderful. PW .Bootstrap Finance Key facts: Turns disadvantage (can‘t draw) into advantage.
Startup Budget = -$400. .qwantz. $15. Fulfillment costs: outsourced. Won $500 in 2003 Business Model Competition.ca.00 for domain name www.Bootstrap Finance Startup Budget: $15.00 for domain name: www. Web hosting: $35 per month.com.poo.
Bootstrap Finance Marketing: T-Rex cardboard cutouts. Placed around campus with this domain on them: www.com. Resolves to: www.poo.qwantz. Ryan is a wealthy person today with plenty of time to explore new ideas… .ca.
com Democratic advertising platform Qwantz.com was the main marketing engine Value of a ―celebrity‖ endorsement Profitable within 10 days of launch .Bootstrap Finance Launched ProjectWonderful.
Bootstrap Finance .
patent agents and TM/copyright specialists and speculators know ―Internet Nickname‖ • CIRA releases dot-ca • ―Gold‖ rush • DOC sues in Canada for ―Intermic.‖) and TM of name in Canada . of ―Internic.ca • Pixie Dust = its name • Lawyers.ca Corp.ca‖ (owned ―Intermic.Bootstrap Finance Remember Internic.com‖ in USA) • Rob Hall had GOC protection (Federal incorp.
000 domains at $50/yr (then) x 2 yrs • $6m in cash in < 72hrs . Internic.Bootstrap Finance • DOC loses • (DOC controls the Internet – 13x root servers around the world) • Rob sets up multiple channels to ping CIRA‘s server (DAC.000 dot-ca backordered • 75% success rate • 60. others – all accredited) • 80.
g.com • e. if Manchester.ca and want Manchester. .com deletes from VeriSign registry.com. if you have Manchester. Pool.com • Snap names $60/backorder up front • Pool.com: “free to backorder/only pay if successful” • several million backorders port over to Pool.com will get the domain for you • $60 if successful or highest bid (when >1 backorder) • Again multiple channels against VeriSign server.Bootstrap Finance • Remember Pool.
Bootstrap Finance Make money while you lie on a beach! .
.Bootstrap Finance So here is our list: 1. Dad and rich Uncle Buck. Soft Capital: Mom. Angel investors may also take part at this stage. basically this is a family and friends round of financing either formally or informally organized.
eqjournalblog. please refer to:http://www. It is usually accessible at low cost (i. For more on creditor proofing. This is the number one source of equity for entrepreneurs across the globe. . low interest) and can be put in place relatively quickly..e qjournalblog. The home would normally go int he name of the spouse or partner with the lowest risk profile. in my view.Bootstrap Finance 2.com/?p=1138. make home ownership an early priority not only as a storehouse of value but also as a way of diversifying their asset mix and doing some creditor proofing too. Student entrepreneurs should. Home equity loans.e.com/?p=526 and http://www.
Bootstrap Finance 3. . the Wes Nicol Competition. EIEF or the Celtic House Competition. Business plan competitions for cash (e.) Student entrepreneurs get very good at this and often use it to supplement their startup capital.g..
service or business model. Future customers or launch clients are another large source of startup capital. Launch clients are important for other reasons as well: they give the new enterprise additional credibility and feedback on their offering that often results in changes in the product. . for example.Bootstrap Finance 4. Home buyers in Ontario. can be asked for deposits of up to $40k in advance.
eqjournalblog.g. For more on Trade Credit..com/?p=610. please see:http://www. 60. TC amounted to $2.5 trillion in bank lending (which was down more than 6. Future suppliers can often be persuaded to extend long term credit to the entrepreneur (e. trade credit (or supplier credit) surpassed bank lending as a source of finance for business in the US. (In 2009.5%.Bootstrap Finance 5. They will probably want a long-term supply agreement though. 90 days or more) or invest cash in your business since they have a lot to gain if you become another (good) customer of theirs. year over year) according to data from the US Federal Reserve.) .15 trillion this year versus $1. Vendor financing of 30.
Sometimes you can get strategic investors to give you an advance on revenue– won‘t even take part ownership. Eg. they invested. (For example. for example. loaned and guaranteed significant capital to/for the nascent team. Ogden Corp. was a strategic partner of the Ottawa Senators Hockey Club—in return for a 30 year arena management deal plus a F&B rights deal.) .Bootstrap Finance 6. Billion Price Project– advances from Stats Can and other national stats orgs. Valve installer which repairs windows with broken seals might. Strategic partners. seek investment from curtain wall manufacturers.
000 and the GOC will guarantee 90% of the loan so that if the enterprise fails. the GOC‘s (Government of Canada‘s) SBL (Small Business Loan) Program is run very effectively by the Canadian Chartered Banks. the founders are only (personally) responsible for 10%. SBLs are available up to $350. Micro capital lending and grant programs.Bootstrap Finance 7. . For example.
For example. Supplier rights. Molson Brewery purchased pouring rights for the Corel Centre (now Scotiabank Place) and the Civic Centre after the City of Ottawa was awarded a franchise by the NHL in December 1990 but before they commenced play in October of 1992. .Bootstrap Finance 8. product placement and licensing fees.
Noma Industries purchased the rights to LED Xmas light strings designed by the author. Patent or other IP licensing fees and royalty payments. .Bootstrap Finance 9.
com. A lot of entrepreneurs support their startups by providing consulting services at the same time. . For more on this. started by PhD entrepreneur. provides lightweight Internet-based (actually cloud-based) desktops that use widely-available and proven freeware. Eseri is based in Ottawa and Montreal and was started with nothing—Bill still gives $1. Eseri. refer to: http://www. Consulting services.Bootstrap Finance 10.000 per day seminars on project management software so that he can fund his real passion— building a great business of his own.eqjournalblog.com/?p=752. Bill Stewart.
squeezing out the other partner or partners. The latter reduces the capital the enterprise requires while the former adds to the capital base of the new company. if one partner has access to significantly more financial resources than the other. You have to be careful though: ―There are still two chairs in Heaven waiting for the first two partners to get there and still like each other. Also. .‖ Anon. Partners can bring cash to a business or they can bring sweat equity. he or she may well end up owing 100% of the business.Bootstrap Finance 11.
angels may prefer to invest their money in the form of debt with equity conversion rights or equity bonus. Debentures (mostly a form of debt). friends. photocopiers and the like although it can apply to almost anything. Family.Bootstrap Finance 12. Financial leasing of fixed assets (such as computers and phone equipment. I have heard of financial leasing for.) . 13. roller coasters. of all things.
Bootstrap Finance 14. you can sell your receivables for cash. Receivables factoring. . Car dealers sell their car leases and loans for cash. Publisher‘s advance on a book or manuscript. If you have clients with strong credit. 15.
it‘s as simple as just asking for donations and sponsorships.com/?p=400. Sponsors. For more about this. By getting sponsors on board. You don‘t need to be a charity or NTP to ask for sponsorship: co-marketing/cobranding. please see: http://www. their costs for the food drive were negative.Bootstrap Finance 16. A couple of young REALTORS I know raised donations (cash and in-kind) for a local food bank last year while raising their profile in the community. You can get people to sponsor practically anything.eqjournalblog. Sometimes. .
In essence. I did a lot of trading up. Check out this story: http://oneredpaperclip. He sold a ton of dot-COMs that way by making the owners of the dot-CAs aware that they could have their dot-COM extensions. One domain name registrar I know found out what percentage of dot-CA holders did not have their dot-COM equivalents while the dot-COM equivalents were still available.com/. Trading activity: buying low and selling high. you are taking advantage of arbitrage opportunities or asymmetrical information.blogspot. Early in my career. .Bootstrap Finance 17. This person traded a paper clip for a pen and traded the pen for a … and then for a generator and then for a snowmobile and then for a truck… His idea was to eventually get a home for himself (which he succeeded in doing).
Scientific R & E.org/CapitalFromLease.htm.Bootstrap Finance 18. IRAP Grants. a services company extracted capital ($800. D Tax Credits from the GOC.000 of it) from its below-market office space lease deal: http://dramatispersonae. 19. For example. Finding capital where you least expect it. . 20. Credit cards (oft used strategy but dangerous because of high interest costs and what can happen to you and your credit rating if you fail to make payments).
.Bootstrap Finance 21. Years ago. Reverse or Negative Pledging of Assets. They extracted mega loans from their Banks based on the value of their real estate and based on their agreeing to not pledge their assets to anyone… It‘s another dangerous strategy because you can end up over-leveraged which O & Y did. Olympia and York raised 100s of millions by not pledging the value of their office towers to anyone.
Co-guarantor.Bootstrap Finance 22. Basically. the Bank was loaning money on the strength of the covenant of lessees. Suite Leases for Scotiabank Place (when it was called the Palladium) were pledged to support construction financing. Of course. You can often borrow someone else‘s (stronger) credit rating. For example. you could also ask Mom or Dad to co-sign for a loan… .
This was accretive to Tim– the cash he pays out every month is less than what he receives and it‘s guaranteed: if any clients leave. the commissions are reduced accordingly. Disney‘s acquisition of the Mighty Ducks is an example of this. a financial advisor I know by the name of Tim bought a book of business from a retiring colleague.Bootstrap Finance 23. . He took over the advisor‘s clients in return for monthly payments to the soon-tobe retired individual equal to a percentage of the commissions he would have received for the next three years. That way. This occurs when you buy another company using the target company‘s balance sheet as collateral. More recently. The reason Tim got the opportunity was because the selling broker trusted him. Accretive buying. you may end up with more cash on hand after the purchase is complete than you had before.
. (OAC). Leon‘s don‘t pay a cent event…. When you sell products or services with third party customer financing in place. you end up with more cash after the sale than before (e.Bootstrap Finance 24..g. Leon‘s than turns around and sells the sales contract for cash. Accretive Selling.
Employees can invest part of their earnings back into the company.Bootstrap Finance 25. . Wesley Clover (an Ottawa based business incubator) uses this extensively not only as another source of capital but as a way to keep highly skilled staff from leaving and to provide further performance incentives for them. Employee ESOPs (Employee Stock Ownership Plans).
Why you may ask. well the greater our monthly sales were. we extended to our investors cost prices for all of their future purchases through our company.Bootstrap Finance 26. We kept these contributed amounts a secret among the different investors as we offered them all the same return. accounts which could only be set up through having a business license. We set no specific investment amounts. tax numbers. Craig and his partner turned their investors into customers and their customers into investors. Pre-sold services. simply the most the person could afford. we had accounts set up with distributors. myself and my partner offered potential investors future discounts through our business. For example.‖ Basically. the greater the amount of goods they could buy for themselves at a cost price. . The only limit we set on this agreement was that the investors’ annual purchases could not exceed our company’s sales revenue from our average monthly sales figure (not including cost purchases made from investors). and at the same time. in return for a fair investment. so the average person off the street does not have access to these discounts. Nice going. a former student: ―In looking for some start-up capital for our automotive related business. The overall idea was to provide our investors a very fair return on their investment. and some negotiating. here is an example from Craig deSchneider. these investors would promote our company. Therefore. In selling automotive parts.
the bidding on eBay had already reached $6.5 million USD: money he planed to use to fund his Trek Aerospace startup. Cool. 2003. This was a new one to me. . Michael Moshier put the original version of his SoloTrek flyer up for auction on eBay. Collectibles sales and auctions. It didn‘t even fly but by January 12th.Bootstrap Finance 27. hoping a museum would pick it up.
. Seller Take Back (STB) mortgages—typically used in real estate transactions. Extended family savings and investment fund—an old style of acquiring start up capital is to have the extended family contribute to a pool of funds to help family members acquire or build businesses.Bootstrap Finance 28. the Seller provides some or most of the financing for the sale by way of a (first or even second) mortgage back to the Purchaser. 29.
Sweat equity. Don‘t underestimate the contribution you make to the enterprise in ways that are unpaid and often not sufficiently recognized. You might form your own club and some of that investment could be used for funding your new enterprise provided that you disclose and get the agreement of the other investors. .Bootstrap Finance 30. Youth and energy count for a lot. Investor syndicate or investment club. 31.
Bootstrap Finance 32. Retainers (typical for consulting services or legal and accounting services) and deposits on sales. 34. Collecting early and paying late (boosts cashflow in the short term). Lawyers do it but more startups should be asking for retainers and deposits on sales contracts. . Delayed payments. Advances for work-in-progress. Progress payments on contracts. 33.
Bootstrap Finance 35..e. These funds are impressed with a trust and are. in fact. We sold $22 million in season tickets for the inaugural Senators season 22 months in advance of the first game. playing NHL games). Advance ticket sales. a liability on your balance sheet: they can not be recognized as an asset or cashflow until you start actually delivering the service (i. .
milliondollarhomepage. Really the purpose of the site is to generate clicks (by asking people to rate the ‗facts‘) which generates a new ad and maximizes revenues for the site‘s owner: http://www.4q. He sold all 1.com/. Check out this silly site which generates up to 8. I presume the ads are for a limited time so he also has the chance to resell the million pixels over and over again.000. The site gets a LOT OF TRAFFIC… Remarkably.000 pixels so guess what? He got his tuition and a lot more. Becoming a reseller (this is big in the Internet age where you can set yourself up for practically nothing as an agent to resell services such as domain names or web hosting).K. based in the U. There are a huge number of things that can be resold on the Internet—many sites generate large revenues by reselling ads powered by Google or other providers.000 ‗facts‘ on Chuck Norris and got 18 million hits in December 2005. Here the young person (age 21.) apparently wanted to pay for his tuition and so he created a million pixel home page. this might be a sustainable business (aPersonal BusinessFor Life!) .Bootstrap Finance 36. Or have a look at this site: http://www. You could buy an ad for $1 per pixel (minimum ten pixels) linked to your site.cc/chuck/.
Bootstrap Finance 37. 38. Bundling their products and services in with your own can often add large margins for you since the cost of providing those products and services are often paid for by the suppliers: you take a percentage of the sales you create for them. Consulting companies use and markup sub contractors. This is ‗money for nothing‘. Importing. . Distributing products for other companies.
Buying more land than you require. Exporting. 41. $12. We built right into the fabric of SBP ‗Architectural Signage‘. land speculation/flipping. Exploiting signage rights. developing a portion of it and selling the balance at a higher price per acre since it is more valuable due to the fact that you have added value in the form of the now completed first phase. 40. . No money down.5 million at the Arrowhead Pond.5 million per yr vs $3.Bootstrap Finance 39.
This ‗gooses‘ your returns. .Bootstrap Finance 42. Using leverage in your transactions– borrowing money at rates that are less than the IRR (Internal Rate of Return) on your equity. Using OPM (other people‘s money)—raising funds through vehicles such as limited partnerships. Finding deals and getting paid a finder‘s fee. the finder. often in terms of equity at no cash cost to you.
Buying under power of sale or through foreclosure (again.Bootstrap Finance 43. mostly real estate related). . Asset flipping. 45. Buying distressed companies or divisions of companies and turning them around. Buying low/selling high. 44.
Day trading. . Asset speculation. 47. Branchising. Franchising.Bootstrap Finance 46. 48. 49.
Bootstrap Finance 50..g.com required each of their contractors to be ―Grade A‖ certified before they could provide services to clients and customers and get access to the billing system and the appointments calendar (a system called GASnet). To be certified the contractors had to pay in advance to take the course…) . Training and uniform fees (e. GradeATechs.
you can usually qualify for construction lending where. Pre-sales in real estate allows you not only to ask for cash deposits but also may give you access to Bank or private lender financing.Bootstrap Finance 51. if you pre-sell 50% of your condo or townhouse project. For example. . your Bank or private lender is advancing you money to build the condos or townhouses on the basis of the strength of the credit ratings of your customers (buyers) and not your credit rating per se. in essence.
Bootstrap Finance 52. you can often finance against that. The same type of thing can help you a lot if you are a manufacturing business—if you have a guaranteed supply contract with a credible client or customer. .
Bootstrap Finance 53. single family home. etc. townhouse. arrange for private equity lenders or other investors to invest in your project. you can then take cash deposits (which are impressed with a ‗trust‘ in that the money doesn‘t really belong to you until you actually have delivered the condo. Land options—sometimes you can convince a landowner to give you an inexpensive option to buy his or her land at a fixed price at a later date. You can then use the time to set up a sales office and begin pre-selling. finance against Agreements of Purchase and Sale executed by you and your clients. whatever). . As discussed above. approach a Bank or private lenders for funding (often through a mortgage broker).
I learned about a new method of bootstrap capital from my (then) 13 year old daughter. It pays for the gas. Everyone wins… . Jessica‘s friend and her parent go for ‗free‘ but they provide the opportunity. the van rental. One of her best friends lives in a single parent family.250. Jessica. The kids‘ parents contribute cash and their children. Her friend‘s parent is unable to work and lives on a modest income. They take with them five other kids—each kid pays $250 for a week‘s holiday—that‘s a total of $1. every year they are able to take a family vacation to a nice destination in a rented van. enough for a camping holiday and some neat adventures too.Bootstrap Finance 54. food and a few outings. How do they afford to do that? Bootstrap capital. However.
it saved about millions in interest payments owed on borrowed money during construction.Bootstrap Finance 55. When we built Scotiabank Place. the contractor was able to complete in 22 months instead of 30— the extra 8 months in a larger structure not only raised revenues over what the Sens could earn in the much smaller Ottawa Civic Centre. . Finding money in the deal flow itself.
Here‘s another example of how to turn sweat equity into cash equity. he owned his interest free and clear. After seven years. Why did the other two investors agree to this deal? Because the young entrepreneur was the operating partner of the restaurant– his participation at both the operating level and ownership level were crucial to the success of the new store.Bootstrap Finance 56. . Interest and repayments came out of his 1/3 share of profits. A young entrepreneur became a 1/3 partner in a restaurant franchise in a great location because his other two partners loaned him his share of startup capital. Getting your partners to lend you the money you need to fund your portion of a new enterprise.
58. . Create a Foundation or a Not-for-Profit to fund a worthwhile project you support/can become your front end marketing vehicle too. This is what former student Ryan North did with Dinosaur Comics which built a big community for and around him which let him start Project Wonderful which turned profitable 14 days after launch.Bootstrap Finance 57. Create one business that helps launch a 2nd.
a source of bootstrap capital as well as quality guerrilla marketing. So between margins generated during and after the competition and the value of the earned media they received. Run a competition like Shopify. (The actual cash cost of the competition was ~$15. in fact.com did.000.500 orders. hence. The fastest growing company after 3-months would win $100.5 million in sales on their platform and over 66. be negative and. nearly 1.) . But during the competition.000 > taking into account the profits generated by the new e-stores on the Shopify platform.Bootstrap Finance 59. The competition was widely covered on influential blogs including the NYT.400 new stores signed up which generated more than $3. It was called ‗Build a Business‘ and it allowed startups to build their business on Shopify‘s e-commerce platform. the cost of the competition would.
sometimes you can just ask for cash—from existing clients or suppliers and they will just gift it to you. .Bootstrap Finance 60. Surprised? Don‘t be. If your enterprise ever gets into trouble. They have a vested interest in your survival.
You can get other types of support from suppliers. business incubators or even friends and relatives or competitors (more on this later): they can provide you with low cost or no cost office or production space. lend you equipment for free. your alma mater. . do some testing or R&D. all you need to do is ask. Sometimes.Bootstrap Finance 61. customers. even second staff to you for a period of time to help you get started.
. for example: do some research on the target company and get an introduction if you can) from prestigious law and accounting firms. knowledgeable friends and relatives. advisory board members and many other sources provided they see future potential either.Bootstrap Finance 62. former professors. from having a relationship with you and your new firm or through you to your own network of contacts. You can make use of more social capital in the form of free or low cost advice or introductions (never make a cold call. directly.
Bootstrap Finance 63. a tech company might exchange running a server to provide communications and Internet services for a Landlord and other Tenants in the building in return for lower rent. Many firms will use barter to get going: for example. .
Earned media (basically.Bootstrap Finance 64. faster and at lower cost. Many types of Guerrilla Marketing are. also a form of bootstrap capital. For more on GM. GM happens when you substitute ‗brains for money‘ when marketing your firm. in fact.com/?p=643. free mainstream coverage and Internet exposure) is the desired goal of publicity stunts and other forms of GM.eqjournalblog. you also gain credibility for your product and services by having third parties talk and write about them. please see: http://www. . Earned media can be much more valuable than other forms of advertising: not only can you gain more exposure.
they could be suppliers to your suppliers or customers of your customers. . They may not be direct suppliers or customers. you can often find others in that ecosystem that will help you. You may find ways to exploit those relationships even if there are two or more degrees of separation from you. Strategic investors.Bootstrap Finance 65. Strategic investment is usually easier and faster to get than VC funding. If you look at your enterprise as part of a business ecosystem.
Apple‘s on-going viability was in doubt and Microsoft loaned the firm the funds they needed to get through a tough time. vice versa. Homebuilders like to hunt in packs—if a potential homeowner doesn‘t like your product. in a way. it was to their advantage that the only viable alternative provider of operating systems at the time (Apple). So if you think you have a product with a lot of differentiated value. Co-opetition can be a huge source of capital. When Microsoft was under investigation by US and European authorities for its monopoly practices. of course. survive. marketing for all. you could perhaps convince an established player to back you with some of their capital… . So marketing by one becomes.Bootstrap Finance 66. they can often march across the street and buy from an alternative supplier and.
you are DOA.Bootstrap Finance 67. Substitute independent contractors or subcontractors for employees. Keep your operating or capital costs under control or reduce those costs. Reducing capital costs is a form of Bootstrap Capital since that is money you don‘t have to raise. If you can‘t keep your costs under control. .
As a result. .Bootstrap Finance 68. often a publicly traded one. well within the range of what an entrepreneur could have accomplished. they can experience outsize returns. It‘s hard to imagine but Bloomberg did this recently to McGraw-Hill when they bought BusinessWeek for a measly $5 million. A large US-based company was closing up shop in Canada recently and it was possible to buy both its plant and Canadian business for somewhere between 30 cents and 60 cents on the dollar. a good place to look would be in the publicly available documents of a publicly-traded firm. They might find a large company. and convince them to sell them an under performing division. For a young person willing to move around. Entrepreneurs often can make a meal from the discards of others. Such transactions can lay the foundation for an entrepreneur‘s entire career since they can often operate these castoffs more efficiently as well as raising sales and revenues faster.
make and receive payments. social media presence. do basic accounting. These let you set up a website. backup your data.0 tools which are amazing with so many available for free or practically no cost. what have you for no money or very little money. transfer data. . It is much easier to start a business in the 21st Century than at any other time in recorded history. do your accounting.Bootstrap Finance 69. blog. process credit cards. Entrepreneurs can use Web 2.
• For example: http://www.eqjournalblog.8 million.com/DealStructure. forget to add their equity and sweat equity. xls • Planning to open a new restaurant franchise in Baltimore w/ two partners • Needed to raise $1. part of it equity . part of it debt.Bootstrap Finance • Many student entrepreneurs when they are building their PBSs (Personal Balance Sheets).
Bootstrap Finance • Wanted to start with a LTV (Loan to Value) ratio of 50/50 • They needed to raise $900k in equity • Bank loan for $900.000 was contingent on raising the balance in the form of equity • Two wealthy partners were prepared to put in $400.000 each • Bill had his sweat equity plus $70k in saving and soft loan from his aunt for $30k .
1% • Bill. was the only partner with experience actually managing a pub • So he had leverage .4% of the business • Bill would get 11.Bootstrap Finance • This would give each outside partner 44. although still young (just 29).
• Partners were willing to enter into shareholder agreement that would let Bill buy more equity over time (to get him to a 20% share eventually) using a complicated formula based on the FMV of the shares less a certain percentage • Ugly deal for Bill
• Instead I suggested all go in as equal partners—1/3 each right from the get go • Bill‘s concern was: ―Where will I get $300,000? I put everything I own on the table just to get to $100k.‖
• Answer is that you can often capitalize a business (or your share in it in this case) right from the deal flow itself. • It‘s easy!
a.Bootstrap Finance • I told Bill: ―What you’re going to do is ask your partners to each loan you $100. Then over the last five years. But for the first two years.‖ .000 for seven years and you’ll agree to pay them interest at 6. you’ll pay monthly principal and interest to them. there won’t be any principal or interest payments—interest will be capitalized. while you’re building the business.5% p.
Bootstrap Finance • ―Why would they agree to that?‖ .
Bill has leverage he didn‘t even realize.Bootstrap Finance • Here‘s why: 1. Bill is in possession of asymmetric information—he is the only skilled operator amongst the group and they need him. His partners should not even think about going into this business with no experience—they‘ll get eaten alive by the competition. .
their risk capital has been reduced by $100. In many ways.Bootstrap Finance 2. Plus they will have a Bill deeply ‗intricated‘ into the business—he is on the hook personally for one third of the loan from the Bank and he owes them personally $100k each. . if the business goes broke. That means. which means he‘ll have to go get a JOB to repay the loans.000 each—because Bill still has to pay it back using his own resources. A happy managing partner is a productive one. his partners are better off by lending Bill their money to become an equal partner.
They are making a return on their capital (6. it‘s still better than most of their IRAs and other investments are paying (from 3. .Bootstrap Finance 3.15% to 6%).5%) which isn‘t particularly great but for two middle-aged investors.
. that the franchise will produce a reliable stream of free cashflow of ~ $325. Huh? That‘s because Bill estimates. this solution is elegant because.000 annually from year 3 to year 7. Bill‘s share of free cashflow is one third or $108.383 annually). based on his experience.949 per year.Bootstrap Finance • • • • • From Bill‘s point of view. So the business is actually repaying his partners. So his actual distribution is a net of $53. he will never actually have to pay these loans back himself.333 less what he has to repay to his partners over the five years from year 3 to 7 ($54. based on his cashflow projections. not Bill.
Bootstrap Finance • During that period.a.a. After he pays off his two partner loans. bootstrapped himself to a one third ownership position in a valuable concession by looking for capital in the deal flow itself. in part. Bill is still seeing a great ROE: he is receiving nearly $54. He is on his way to becoming wealthy—he will have created an ‗annuity‘ for himself—reliable. • • More on Bootstrapping at: http://www.com/?p=1162 . his ROE (in year eight) jumps to over 108% p. So Bill has.000 a year from the biz on his actual out of pocket investment of $100k or nearly a 54% p.eqjournalblog. reproducible. recurring cashflow produced by an asset he owns or controls. rate of return.
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