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Bootstrap nov 2011
1. How to finance your start-up!
“Bootstrap finance”
Dr Thomas Arctædius
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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
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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”
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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
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9. Two models
• Big-money (Venture Capital)
• Stepwise soft money & Bootstrapping
$
time
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10. Example creating value - You need
1.000 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
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11. Bootstrap Finance
In 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.
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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
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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.
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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.
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15. Advice
To 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.
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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.
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17. Read more
• Bootstrap finance:
– A. Bhide, Harward Business Review, November-December
1992
• The Lean Startup:
– Eric Ries: How Today's Entrepreneurs Use Continuous
Innovation to Create Radically Successful Businesses, 2011
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