Bootstrap nov 2011


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Bootstrap nov 2011

  1. 1. How to finance your start-up!“Bootstrap finance”Dr Thomas Arctædius Page 1 of 18
  2. 2. Thomas Arctaedius Ph D Nuclear Physics Started 7 companies CEO and chairman Advisor and private investor Visiting scholar Stanford University Now: CEO ayond AB Page 2 of 18
  3. 3. Bhides article in Harward Business Review:• Bootstrap Finance: The Art of Start-ups – Interviewed 100 private companies, 8 years or younger from the 500 fastest growing companies, – Median 10.000 US$, 80% from FFF – ”Raising money has become a disease. Entrepreneurs are wasting lots of brainpower scheming to raise money” Page 3 of 18
  4. 4. Page 4 of 18
  5. 5. The innovation process? Idea Planning Team Prototype Beta test Sell Page 5 of 18
  6. 6. The way ahead… Market risk STARTCapital interested GOAL Technical risk/uncertainty Page 6 of 18
  7. 7. Financing”the biggest challenge is not raisingmoney but having the wits to do without it” Page 7 of 18
  8. 8. Types of financing• Loans and grants – Family/Friends and own – Banks – loan – Grants – Public soft-loans• Equity based-financing - Business Angels - Venture Capital• Bootstrap – Barter – Suppliers/customers Page 8 of 18
  9. 9. Two models• Big-money (Venture Capital)• Stepwise soft money & Bootstrapping$ time Page 9 of 18
  10. 10. Example creating value - You need1.000 kkr to develop and sell your product• Step wise – Step 1: Almi 15kkr + 75kkr – Step 2: Innovation loan: 210 kkr – Step 3: A grant: 100 kkr – Step 4: Customer: 200 kkr – Step 5: Business angel • You now need 400 kkr, you get a valuation of 4,000 kkr and sell 10% of the company to the BA• Big money • Step 1: Apply for 1.000kkr from VC/BA • You get an valuation of 2.000 kkr and need to sell 49% of your company Page 10 of 18
  11. 11. Bootstrap FinanceIn short, "bootstrapping" means: starting a new business without start-up capital.Financing a small firm through highly creative acquisition and use of resources without raising equity from traditional sources or borrowing money from a bank.Bootstrapping is the source of initial equity for more many new fast growing firms.Bootstrapping offers many advantages for entrepreneurs and is probably the best method to get an entrepreneurial firm operating and well positioned to seek equity capital from outside investors at a later time. Page 11 of 18
  12. 12. • Get operational quickly. Look for quick, break-even, cash-generating products – Close contacts with customers from day one; start selling what the customer need. Start easy simple and focused. – ”Don’t stick to your strategy” – make money – Let the customer’s wishes and willingness to pay determine what the company does.Strategies for Successful Bootstrapping Page 12 of 18
  13. 13. • Forget about the perfect team. – Attract employees with opportunities to upgrade skills and build their CV• Let customers and suppliers finance development. – Barter and share risk – Get payed in advance – Pay late Strategies, cont. Page 13 of 18
  14. 14. • Keep growth in check. – Sell to one customer, then two, then four – not to everyone at once – Control “Burn rate”• Focus on cash (not on profits, market share, or anything else). – Don’t get lost in complicated accounting and budgets Strategies, cont. Page 14 of 18
  15. 15. AdviceTo create income before expenses• Sell first, buy later.• Let revenue control costs.• Let customers and suppliers finance development.To minimise fixed costs• Cover fixed costs by getting orders.• Do not investor recruit without secure orders.• Outsource and use consultants.To control and execute the critical and unique aspects of the business• Every business has a unique core – guard it jealously.• Stay in direct contact with end customers. Page 15 of 18
  16. 16. Advice cont.To capitalise on opportunities• Reduce the scope of the business to a core operation and expand it later, if possible.• Sell to one customer, then two, then four – not to everyone at once.• Let the customer’s wishes and willingness to pay determine what the company does.To avoid risks• Take one risk at a time, rather than several simultaneously.• Let others share the risks – customers and suppliers. Or refrain.• Only take the risks that the company can afford. Page 16 of 18
  17. 17. Read more• Bootstrap finance: – A. Bhide, Harward Business Review, November-December 1992• The Lean Startup: – Eric Ries: How Todays Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, 2011 Page 17 of 18
  18. 18. • Questions• Comments Page 18 of 18