Funding 101, Part I: Bootstrapping

Startup Diaries: When The Time Is Right
23rd August 2016
Funding 101, Part 2: Business Training Programs for Women
24th August 2016

We are so excited to publish this 8-part series by angel investor Elizabeth Crowell, which will examine the various fundraising/financing options for starting and growing a business.

I wrote a provocative post a few months ago, titled “Go ahead and start a business, just use your credit card!” Sarcasm aside, as a business owner and angel investor, I am in the trenches of how businesses are financed and funded and as much I would like to report that as an entrepreneur you can choose to spend 100% of your time the way you wish, the truth is  you may well devote significant time and energy to securing capital over the life of your business.  And it’s no newsflash that capital raising is a tremendously time-consuming aspect of launching and running a business, as many entrepreneurs will gladly complain to you.

But that doesn’t mean you should pause in your quest to open your own business. Rather, it means you need to educate yourself about your options and wisely match your needs to market opportunities. Obviously, this is easier said than done, which is why TheNextWomen has asked me to outline the landscape for funding and financing for new businesses, soup to nuts, in a 8 article series.  So if you have thoughts about starting a business, or already have the game-changing idea spec’d out, it’s high time you acquaint yourself with the financing and funding landscape.


Consider this series your map, as you wade into the ever-changing funding territory.

To begin, we are going to demystify the mother of all funding options, bootstrapping.

Although this term is spoken with battle-scar pride, stripped down to its bare bones, bootstrapping is simply another way of saying self-financing.  Lest you think you do not fall into the bootstrap category,

68% of female businesses, as cited in a 2012 study by the Kaufmann Foundation, self-reported that they used personal savings to launch their businesses.

Some of the most popular forms of bootstrapping, literally tapped from the colloquialism to pull oneself up by one’s bootstraps — pause and visualize that for a minute to get a sense of how risk-prone an undertaking it is — are kin and kindred with gambling. After all, bootstrapping means taking some currency of your own personal wealth, whether it’s savings, credit or collateral, and pouring it into an unknown risk.

If you are game for starting a business, you must also be game for losing personal funds.

Word to the wise: Bill Harris, former CEO of PayPal and Intuit, and now founder and CEO of Personal Capital, a wealth-management company, advises his clients not to invest more than 50% of their net worth in their own business until they have $1 million or more in safe assets. Bear in mind that you may need to self-fund your company more than once, so don’t go all-in at the get-go for sure.

In practice then, bootstrapping may utilize a founder’s personal savings, leverage collateral to secure a line of credit such as a home equity line, or take a credit card advance to get that essential seed capital needed to get operations up and running.  Think out-of-the-box here: I met a founder who liquidated her 401K and took the tax penalty, to come up with enough funds to launch her business in a timely manner.

However, some bootstrapping solutions are dubious and not recommended. Kiting credit cards, i.e. using one credit card to pay down another credit card in a hopeful cycle until the big payday, when all the credit cards are paid off, is risky, expensive and borderline illegal. Plenty of legal, creative solutions abound however, like how about funding a business from poker winnings. Kathleen Utecht, former entrepreneur and now VC at Comcast Ventures  in NYC knows a founder who “work(s) on their business during the day and in late evenings wins (poker) games to fund their company.” One of the most famous and endearing examples of an out-of-box bootstrap comes from Juliette Gordon Low, founder of the Girl Scouts.  In the early years, the organization was in danger of closing due to lack of funds. Gordon Low generously sold a family heirloom, a string of pearls, to keep the organization afloat.  A hundred years and millions of cookies later, we are grateful for Gordon Low’s sacrifice.

Lest you think bootstrapping is all risk and no reward, let’s not overlook the upside: retaining 100% control and ownership of a business.

Don’t have the stomach, pearls or the bank account for it? Put yourself on a spending diet and try moonlighting in the early stages of your businesses until you show some revenue or get the courage to jump the nest and fly. Warning: be sure to check your employer’s non-compete clause carefully before beginning to moonlight. Many technology firms will claim the rights to your ideas, even if they are developed outside company hours and off-premise.

Elizabeth Crowell is the co-owner of Sterling Place, a multichannel retail company that sells eclectic antiques, fine home decor and specialty gifts. Profitable from year two, the business has steadily grown, with two store locations in Brooklyn, as well as a website. Sterling Place has been profiled by the NY Times and Elizabeth has been a repeat guest expert on Martha Stewart Living Radio. In 2011, Elizabeth was selected as one of 10 in the inaugural class of Pipeline Fellows, a program designed to train women to angel invest in women-led triple bottom line ventures, ie. profitable, environmentally responsible and delivering social impact. She is in the process of building out her own angel portfolio. For more information on Elizabeth, see her profile.

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