Bootstrapping is the art of lifting oneself by the bootstraps. It may sound impossible, but bootstrapping is how many startups survive. Thanks to smart new ways of leveraging limited resources, including the emergence of crowdfunding, bootstrapping is an increasingly viable—and sometimes even the most desirable—funding strategy for early-stage startups. This lecture will cover both the strategic and the practical aspects of bootstrapping for early-stage companies.
Kenya Coconut Production Presentation by Dr. Lalith Perera
Alternative Sources of Funding - Entrepreneurship 101
1. DEVELOPING TALENT • GROWING VENTURES • OPENING MARKETS
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INNOVATION
B E C A U S E T H E F U T U R E M A T T E R S
A P R I L 2 0 1 5
2. DEVELOPING TALENT • GROWING VENTURES • OPENING MARKETS
Our Future MaBers
Bootstrapping
C R E A T I N G S M A R T L E V E R A G E T O F U N D Y O U R B U S I N E S S
J O N E W O R R E N
October
2014
3. Ok,
so
you’re
working
on
an
idea
for
a
business,
but
startup
capital
is
hard
to
come
by.
What
now?
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The VC Perspective
Numbers from MaRS IAF:
• In 2013: Met with/talked to
1,000 companies
• Received 250 applicaZons
• Serious Due Diligence for 50
• Made 13-‐14 investments
– 6 IAF alone
– 3 with one or more angels
– 2 with other VC
– 2 with other VC and angels
• Per 10 investments
– 1-‐2 that are very successful
– 6-‐7 that do OK
– 2 fail outright
• Successes must cover losses
and fund cost + yield returns
• Early stage: Looking for
10-‐12x return in 5-‐7 years
• Later stage: 5-‐7x in 4-‐5 years
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"pull oneself over a fence by one's bootstraps”
Adynaton: a figure of speech using hyperbole to
suggest a complete impossibility. Examples:
• Not before Hell freezes over
• When chicken grow teeth
Bootstrapping
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Bootstrapping:
A
way
to
finance
your
business
without
giving
up
equity
Crea:ng
Smart
Leverage
Using
gravity
to
your
advantage
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OperaZng principle:
Cash flow is more important than
profit
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Cash flow
Cash in hand
Burn rate
Runway
Liquidity
Key terms:
10. DEVELOPING TALENT • GROWING VENTURES • OPENING MARKETS
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How to bootstrap?
B O O T S T R A P P I N G
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1. Cash efficient set up
• Use home office as long as
possible
• Shared work space may
offer hot desks, meeZng
rooms, office space
• Get an off-‐the shelf
website
• DIY: Use tools like
Freshbooks to help
generate and track
invoices and taxes for you
• In the beginning; hire
contractors on hourly
basis
• Use services like
elance.com to find
freelance markeZng,
graphic designers etc.
• Find free/low cost
networking events – to
build your network and do
iniZal market research
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Cash efficient does not mean cheap…..
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• You can buy really cheap Computers, but should
you?
• If PCs are mission criZcal equipment – think
about the cost of being without for 30 days…
• Example bought two PCs, not the cheapest, but
sZll affordable: both broke down within 3
weeks…….could not be serviced locally so waited
6-‐8 weeks before my persistence had the shop
give me two new PCs… a lot of unnecessary
frustraZon.
For example
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Other examples
• Lawyers
• Accountant
• PR agency
• Using the right
service providers
can help build
credibility
• They can also be
sources of referrals
15. DEVELOPING TALENT • GROWING VENTURES • OPENING MARKETS
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M O N E Y, M O N E Y, M O N E Y
SOURCES OF
FUNDING
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Co-‐Founders
Grants & Loans
Suppliers
Partners
Customers
Community (“the Crowd”)
Funding can be provided by:
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L E V E R A G E P U B L I C L Y A V A I L A B L E F U N D S
GRANTS & LOANS
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• A search tool in MaRS’ Entrepreneur’s Toolkit
with more than 4,500 government funding
programs
• The $30B Federal/Provincial/Municipal incenZves
market is made up of:
• $26B in grants
• $4B in tax credits
Note: Use of grants over tax instruments is a strong
trend as it produces beBer ROI for government
funders
Grants
&
Loans:
The
Funding
Portal
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A rich source of funding
• Average grant size among the
Top 500 recipients is about
$1.8M
• About 1.5% of grants are over
$10M
• 76% of grants are paid to
companies and
– 95% of these are paid to SMEs
• 28% of recipients are based in
Ontario
• Top sectors are Manufacturing,
Media, and Tech
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0 50 100 150 200 250
IT and Digital
Academic
Arts
Manufacturing
Cleantech / Energy
Accomodation
Agriculture
Mining
Healthcare
Telecommunications
Aerospace
The Funding Portal Search Tool
Over 2,500 searches on The Funding Portal since September 2013.
2015-‐04-‐02
Industry
sector
Annual
revenue
Startup
maturity
3-‐5yrs
Startup
5-‐10
yrs
+10
yrs
<
100K
100K-‐1M
1M-‐10M
>
10M
1-‐3yrs
Presented
data
from
10/01/2014
to
02/28/2015
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D O Y O U H A V E S U P P L I E R S T H A T A R E W I L L I N G T O S H A R E R I S K W I T H Y O U ?
SUPPLIER FUNDING
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How suppliers can help
Mostly about Zming and terms
of payment:
• Long credit
– Can they wait unZl you get
paid?
• Share the risk
– Are they willing to ONLY get
paid when you make money
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F O C U S O N T H E B U S I N E S S
CUSTOMERS
24. “The purpose of business is to create
a customer”"
Peter Drucker, The Practice of Management!
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Pay in advance – partly or fully
• Common pracZce in media, SaaS, consulZng
• Requires an offering – a product or service
descripZon/specificaZon – that the customer
desires
• Significant focus on sales and relaZonship
development
How
customers
can
help
26. DEVELOPING TALENT • GROWING VENTURES • OPENING MARKETS
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• Can
you
find
a
customer
that
is
willing
to
pay
all
or
most
of
the
cost
of
developing
the
product
you
plan
to
develop
in
any
case?
– Common
in
soWware
and
informa:on
businesses
– Agreement
with
customer
allows
you
to
retain
control
of
the
IP
– Customer
is
granted
“non-‐exclusive”
and
“non-‐transferable”
license
to
use
product
for
a
limited
period
Paid
“product
development”
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C A N Y O U B U I L D A C O M M U N I T Y O F C U S T O M E R S
CROWDFUNDING
28. DEVELOPING TALENT • GROWING VENTURES • OPENING MARKETS
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• Crowdfunding
is
a
form
of
customer
funding
• Pre-‐sales
vs
dona:ons
• Flexible
vs
fixed
funding
targets
• PayPal
restric:ons
re
pre-‐sales
campaigns
Basics
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• Create
video
(normally
6-‐8
weeks)
• Plan
media
&
Social
media
outreach
• Set
targets,
build
team,
determine
rewards
Prep
&
set-‐up
2
weeks
–
6
mths
• Manage
media
in
:mely
fashion
• Respond
to
campaign
comments
• Maintain
momentum
Launch
&
Mgmt
4-‐6
weeks
• For
H/W:
manage
manufacturing
and
logis:cs
• Manage
media
&
community
Close
&
Fulfil
4-‐6
months
Pre-‐sales
Campaign
Anatomy
30. DEVELOPING TALENT • GROWING VENTURES • OPENING MARKETS
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• Most crowdfunding campaigns fail
– What is the opportunity value lost if that happens
– What impact will failure have on the team
• Financial:
– Don’t expect to make money on a pre-‐sales campaign.
– For the most part it is simply markeZng.
– Know your cost so you don’t undercharge
• Crowdfunding is not easy money!
Risks
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B O O T S T R A P P I N G A N D T H E B I G P I C T U R E
STRATEGIC
PERSPECTIVE
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The
$100,000
ques:on:
How can you get to $100,000 in monthly revenues
by bootstrapping?
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B2B example
• Deal size: $25k
• New deals/month: 4
• Conversion rate: 5%
• New leads required: 80/
month
Gefng
to
$100k
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SaaS – Using AARRR
Acquisition: 1000
Activation: 200
Retention: 196
Revenue: $19,600
Referral: N/A
98%
20%
$100
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Gefng
to
$100k
$100,000/($100*0.98*0.20)
Having
5,102
ac:ve/paying
customer
per
month
To
get
from
“0”
to
$100,000
in
12
months
means:
-‐
Adding
100
new
paying
customers
per
week
(reten:on)
-‐
Adding
102
new
users
per
week
(Ac:va:on)
-‐
Adding
510
new
sign-‐ups
per
week
(acquisi:on)
How
much
web
traffic
is
needed
to
get
to
510
new
sign-‐
ups
per
week?
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• Bootstrapping
is
about
smart
leverage
• Cash
is
King
(not
profits)
• Crowdfunding
is
a
new
tools
that
can
help
bootstrappers
Summary
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THANK YOU!
B E C A U S E T H E F U T U R E M A T T E R S
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