It’s a misconception that entrepreneurs must raise a great deal of up-front capital to succeed. This is simply not true—nor is it usually possible.
If moving from Pre-Concept to Seed stage without raising bundles of investment capital sounds good to you, heed these 5 bootstrap financing Tips. You’ll not only avoid giving up equity before you must; you could be in a better position to negotiate.
Open your own wallet first.
Tap into savings, home equity, or retirement accounts. It’s risky, but don’t expect others to invest in your startup if you haven’t put some of your own money in. Knowledgeable investors want founders to show confidence with cash. They favor entrepreneurs with more than “just” sweat equity in the game.
Sign up strategic partners early on.
There’s nothing sweeter than finding a supplier, distributor, or especially a customer who stands to gain so much from your solution that they are willing and able to help foot the bill.
This is a planning-for-success bonus play:
- The quality and reliability of your supply sources, whether for materials or software, will be key to your success. Far better to create relationships and work out the kinks while your company is simple and small than to discover an issue when you’re ready to scale.
- If your solution aligns with a B2B business problem that the market is clamoring to solve, there will may be early adopter customers who could make a strategic investment if they believe it would improve your chances of relieving their pain.
Early adopters provide a unique and valuable hands-on perspective of what’s right and what needs to be changed to improve the value proposition of your solution. These companies will be less focused than equity investors on traditional ROI and more interested in how their investments will speed up getting your prototype to their beta.
- In-house sales teams are challenging to staff and manage. Before building a direct sales team into your business plan, explore other options—online, manufacturers’ reps, or companies in your industry that already sell solutions that could be enhanced by yours.
- Early connections between startups and strategic partners often turn into beneficial relationships that span decades. There’s something very appealing about being part of a local startup’s early success—especially to corporations and service providers who are right in the startup’s own backyard.
Paying as you go by earning revenue from early adopters and managing every dime like it is a dollar is the most cost-effective way to stretch your company’s resources—financial and otherwise.
Nothing is scarcer than cash (except maybe sleep) when you’re starting out. The more you can bootstrap from Pre-concept through Seed Stage, the easier you will find your path to raising equity capital.
Pursue non-dilutive capital.
Grants, solicitations, and RFPs may not be a fit for every company, but make sure your situation isn’t a “yes” before you jump to “no.”
Some industries, such as biotech, are especially conducive to federal grants. The Small Business Innovation Research (SBIR) program, for example, ranges for $150,000 to $1MM. And regardless of your industry, don’t forget to look in your own backyard. More and more cities, regions, and states have grant programs or loans for high growth businesses at low interest rates.
Match capital to milestones.
Too much capital is as bad as too little. A startup should never raise more capital that the team can effectively use. Matching capital requirements to achievable milestones keeps the company from giving up equity before it’s required. A good question to ask is “will raising additional capital accelerate the likelihood of an exit?
Establish a line of credit.
Even if you don’t use it, bankers will return your calls once one of their competitors has vetted you.
There are no silver bullets when it comes to sourcing early stage funding. With the right capital strategy and a concentrated emphasis on bootstrapping, entrepreneurs can avoid shooting themselves in the foot.