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Is Bootstrapping Becoming Sexy Again?

Posted on Friday, Mar 9th 2007

Gone are the days when entrepreneurs boasted at cocktail parties about how many million dollars they have raised for their startups. That was so very nineties!

Yes, times have changed. Entrepreneurs seem to have become savvier. In the last 2 months, I have worked / spoken with several sets of entrepreneurs who are perfectly happy bootstrapping their companies.

One pair, an experienced CEO and a technical founder, went through a startup right before, where they raised $60 Million, and watched their shares get diluted to less than 1%. This time, they are determined to do it right, not lose their shirt, and defer taking venture money for as long as they possibly can.

Another has built a smallish company with just over a million in revenues, and simply doesn’t want to deal with venture investors, having had bad experience in a previous round.

A third pair consists of first-time entrepreneurs who worked for a number of years at Siebel, built relationships with customers, and managed to get a $7 Million customer commitment to build their product, while preserving ALL Intellectual Property.

Is there a trend here?

To answer this question, I will take the liberty of some speculation, some extrapolation, and some projection.

Silicon Valley, certainly, has matured. Today’s valley is chock full of second, third, fourth generation entrepreneurs, who have done it before. For most, the VCs have been the greatest teachers. By poking holes in their strategies and business plans, by holding them accountable, time and again, by firing them, by hiring them again, by funding them – the VCs have contributed, most importantly, to their learning experiences.

As Gerry puts it in his article, Axe The CEO,
Entrepreneurs often have mixed goals in starting a business. They want to deliver on a product vision, want to grow a major enterprise and make money, and also want to be the boss. Venture Capitalists have only one goal, they want to make money for their investors and themselves.

It is true, Entrepreneurs have mixed goals in starting a business, money often being only one of them. Besides the motivations that Gerry mentions above, here are a few more: aspirations for greatness, control over their destiny, desire to make an impact, etc.

Here’s a great interview of Craig Newsmark, founder of the famous Craigslist, which offers an alternate value system:


You’ve also had a couple dozen buyout offers for craigslist. Aren’t you tempted to cash out, move from your foggy neighborhood, and buy an island somewhere?
I admit that when I think of the money one could make from all this, I get a little twinge. But I’m pretty happy with nerd values: Get yourself a comfortable living, then do a little something to change the world.


Wow, I thought, when I first read it. A VC would simply shrink from that sentiment.

But it has made me ask the question, are entrepreneurs these days bootstrapping businesses to simply “build, run, and enjoy”, as opposed to the traditional valley models of Build-to-flip or Build-to-IPO?

$7 Million annual revenue is not enough for VCs. It is, however, a good amount to have a good lifestyle, and do something you enjoy. It is absolutely essential, however, that if you decide to go down Craig Newmark’s path of Build-to-enjoy, that you do not take venture money. Not even angel money. No outside money, period, preferably, because investors with stake in your venture will always bug you to exit.

Of course, there are many successes of bootstrapping where entrepreneurs successfully built large public companies. The story of Frank Levinson and Jerry Rawls is one such.

Related readings:
Alarm Clock – Typical example of a business that is not for VCs, but a good Build-to-enjoy proposition. My older piece Viral Islands provides some guidance on how to develop bootstrapped viral businesses.

and from Don Dodge, a survey of the venture-angel investment numbers.

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I think this is how developers see web2.0. Besides the web2.0 rounded corners, funny names, and rss feeds, there is the ability to launch a product for very little money — software development costs are approaching zero.

Bootstrapping is also a way to dip your toe in the entrepreneurial waters with less financial commitment. You don’t have to borrow someone’s money, and you can see if your idea has any traction in just a few months.

Since software costs are approaching zero (thanks to frameworks like RoR), I think software developer entrepreneurs will start looking to angels and VCs for partnerships that bring in users instead of cash.

Of course, since anyone can launch a salesforce competitor for less money and less time than a couple years ago, we’ll see many more crappy offerings.

Bootstrapped companies that can form partnerships that bring in customers immediately will succeed. And to get that partnership, I think entrepreneurs will still have to give up control/equity, similar to if they took money from a VC. But in total, entrepreneurs can give up less than they had to a couple years ago thanks to cheaper (free) tools, low cost hardware, and general web adoption.

And to your point, it doesn’t hurt when people like Paul Graham make bootstrapping sound sexy.

my 2cents.

Ben Friday, March 9, 2007 at 12:23 PM PT

Linking this to the discussion on entrepreneurial and VC activity in India on this forum, this mindset is perhaps even more strongly prevalent among Indian entrepreneurs. Indian software entrepreneurs have been strongly influenced — consciously or unconsciously — by the success of software services companies. Service companies generate revenues from Day 1; there is no concept of spending years of effort before seeing the returns. Many aspiring entrepreneurs in India combine their entrepreneurial activity with some consulting/contract development work on the side. This, coupled with the traditional reluctance of entrepreneurs to give up control, makes the Indian entrepreneurs even more likely to stretch out their bootstrapped phase. One can question the quality of products or ventures that are built using this approach, but I think this is a reality in India. And, in my view, yet another reason why large VC funds will be challenged to find enough good deals to fund.

Dharma Friday, March 9, 2007 at 7:52 PM PT

You are spot-on, Dharma. It’s absolutely part of the Indian company DNA to bootstrap with consulting contracts. Very true.

Sramana Mitra Friday, March 9, 2007 at 8:03 PM PT

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Sramana Mitra on Strategy » Blog Archive » Playing VC Wednesday, April 11, 2007 at 9:45 AM PT

Loving this post….now I feel even more confident in avoiding VC for the time being…

Anthony Longo Thursday, May 31, 2007 at 8:43 AM PT

You are not the only one πŸ™‚

Sramana Mitra Thursday, May 31, 2007 at 3:37 PM PT

[…] has emerged as a very popular trend recently in the Valley as more entrepreneurs are bypassing Venture Capital. Here I ask Rene about the roll of boostrapping […]

Sramana Mitra on Strategy » Blog Archive »'s Incubator: René Bonvanie (Part 5) Sunday, June 10, 2007 at 7:54 AM PT

I’ve been bootstrapping for over 2 yrs. full-time. I’m tired of hearing about those who have $10 million or whose uncle is Jim Clark lumped with those who don’t have a choice. What about those who don’t have a lot of money and are leveraging their savings, friends, and credit cards….? That’s me, and several dozen others, who are facing a market creeping up on them, credit card bills piling, employees leaving, difficulty in even attracting co-founders…

Yes, it’s sexy to bootstrap, but if you make a mistake or two as you’re bound to, life can get very difficult very fast.

And raising money is harder at that point because they vultures are waiting for you to die to make a meal of you.

My 2 cents.

Murali Krishna Devarakonda Tuesday, June 12, 2007 at 4:33 PM PT

As a business strategy consultant, I have experience in company bootstrapping as well as obtaining capital through either debt and/or equity vehicles.

In my opinion, choosing a capital structure is dependent upon three business aspects and preferences:

  1. Ability to reach desired revenue/profit targets without a capital infusion

  2. Ability to raise capital, specifically do you have a compelling story and an exit strategy

  3. What level of control are you comfortable giving up

Lastly, if you choose to raise capital consider an investors ability to provide resources (introductions, expertise, exposure and reputation) in addition to what it written on the term sheet.

Lori Williams LW and Associates

Lori Williams Tuesday, June 12, 2007 at 8:56 PM PT

Sramana, great and compelling topic. On one hand, I’d like to agree with your assessment of the increasing trend towards more bootstrapped funding models–I know of at least three up and coming businesses in Seattle alone right now choosing that approach. On the other hand, I saw over 5 announced technology/digital media VC fundings today alone. At the end of the day, OPM (other people’s money esp. institutional money) may just be too attractive for the struggling entreprenuer to turn down particularly if their business can’t get profitable on boostrapped means alone. The typical entreprenuer is driven largely by the desire to see their baby grow up and succeed and bootstrapped funding rarely provides that chance.

I personally bootstrapped a business earlier this decade for over four years, mostly because market conditions gave us no other option. That said, when we finally raised VC funding, the dynamics and chemistry significantly changed…and not for the better. I have no doubt my previous experience will strongly affect future choices I make in this area of business. πŸ™‚

Brett Tuesday, June 12, 2007 at 9:09 PM PT

We bootstrapped our firm, Bit Economics, through savings, consciously cultivating a low cost of living and more significantly, by providing consulting services while we developed and launched our SaaS software.

In complete agreement with other comments made here that the focus now is NOT on relationships/partnerships that secure funds but rather on those that help us obtain users.

Charlene Wednesday, June 13, 2007 at 12:45 PM PT

Yes, and no amount of funding gets you users … getting users is a painstakingly laborious process that takes something other than funding.

There is, still, some advantages for inexperienced entrepreneurs to take venture money, and the guidance that may come with it. It doesn’t always, but if it does, it can be useful

Sramana Mitra Wednesday, June 13, 2007 at 1:31 PM PT

To assume that the VCs put entrepreneurs on track is a lot of assumption. VCs play a poker game: invest in 10, one company comes up a winner and they are happy. How many VCs have truly led every portfolio company to success? I can count them on my fingers.

VCs don’t know more than the entrepreneur about the market, competition, or client pain. You can flame me for it, but a large part of it is truth.

Also, like Joe Kraus (of Bnoopy) says, computing, resources and talent have become cheap that bootstrapping is not a pain anymore. Today’s heat is social networking. How many VCs have mapped this out enough to invest smartly? Again: finger-numbered. Tomorrow when these networking sites sit idely doing nothing, there will be another melt-down.

Boot-strapping is best done when the entrepreneur is super confident of his business–not abot his technology. Many entrepreneurs today are smart to hire CEOs even before the first round: they have learnt the ropes now.

I have found bootstrapping offers a contrarian position: passion and patience. One needs to have the passion to stay the long haul, and the immense patience to work it out. Both contradict each other.


Karthik Sundaram Wednesday, June 13, 2007 at 11:32 PM PT

While those VCs who have little or no experience of every having done a startup do not add a lot of value, you are giving many of them a great deal less credit than they deserve.

There are VCs with deep-pocket relationships, which can make or break your company. Mike Moritz has proved this a few times over. The guys at Foundation are all former VPs of Sales, and have good CIO relationships. They can bring you into clients much more easily than you would probably get in yourself.

On Web 2.0 and Social Networking, it is a category that very nicely lends itself to bootstrapping, because building traffic takes patience, and adding money into the deal doesn’t necessarily get you much further. VC money can pay some salaries, but that’s all. On the other hand, you have to be in a life situation that allows you to operate in a limited cashflow situation, to be able to bootstrap for a long time. That’s not exactly easy either, for most people.

Sramana Mitra Thursday, June 14, 2007 at 8:33 PM PT

Thanks Sraman for the visit to and leaving a comment.

Read your bootstrapping piece. I agree, It does make sense to delay funding as long as one can if money is the only thing one expects from VCs & Angels.

Having worked on three independent ventures so far, I believe that signing up a good VC/Angel in an independent expert advisory role can make a difference between success and failure in fast paced venture space.

Subodh Vinchurkar Tuesday, July 3, 2007 at 9:35 AM PT

The third group of entrepreneurs have an excellent strategy and demonstrate the strength in bootstrapping. An influx of cash can easily be mismanaged if entrepreneurs are not prepared. I have learned that community development is more important than quick cash.

David Litsky Thursday, July 5, 2007 at 6:56 PM PT

[…] One wonders why eBay doesn’t just buy Craigslist, the answer to which is that Craigslist’s Founder Craig Newmark has no desire to sell. […]

eBay’s Vertical Classified Strategy - Sramana Mitra on Strategy Friday, July 6, 2007 at 6:47 AM PT

[…] Thank you to Sramana Mitra for sharing an excellent article on bootstrapping. […]

David Litsky :: A guide to bootstrapping Saturday, July 7, 2007 at 5:46 PM PT


Thanks for pointing me to this post on a comment on my blog; good stuff.

This would be a perfect post for the next edition of theBootstrapping Entrepreneurs Blog Carnival if you’re interested.


Chris Monday, July 9, 2007 at 2:44 PM PT

I am currently working with several start-up companies (some in software, some in other industries) helping them grow through sales alone. When they started, they were R&D shops without homes. Now, they are sales organizations. In a few months/years, the transition to marketing organization may occur – if they meet enough hurdles.

The only comment I am trying to make is that a company doesn’t have to “bootstrap” to finance its growth from sales. It does have to have a very focused sales process and a growth plan to match.


dslennox Wednesday, July 11, 2007 at 9:52 PM PT

I am a bootstrap entrepreneur. I can’t imagine opening a business any other way. Soon after Hurricane Katrina and being forced to move to Texas two friends and I decided to open a small home decor and gift shop. We had just lost everything in the Hurricane and had all lost our jobs due to Katrina as well. We decided to try something new and open a retail store.

On April 17, 2005 we opened Grace’s Unique Gift Boutique in Humble Texas. I can tell you, bootstrapping a business is not very easy, but it is quite rewarding. When I said I couldn’t imagine opening a business any other way, I truly mean that. While we are in business to make money, we are also here to make a difference in our new community and give back to those who embraced us when we needed it most. We very much enjoy what we are doing now and we have recently decided to venture into other realms of the gift business.

We have just released our own line of highly fragranced candles in our store. We have named the line Esteem Home Fragrances. These candles are available in our store and on our website: . We hope to offer these candles to other home decor and gift shops at wholesale soon.

As for our website, we have just recently launched it and it is a continuous work in progress. We have many home decor items, scented candles and jewelry on the site and we welcome comments and suggestions for improvement.

Tim McCarley Thursday, July 12, 2007 at 12:45 PM PT

[…] Thank you to Sramana Mitra for sharing an excellent article on bootstrapping. […]

The Bootstrap Economist :: A guide to bootstrapping Thursday, October 25, 2007 at 8:05 PM PT

I have bootstrapped my online business, It is a great feeling to have zero debt and almost zero overhead. Every penny of income is profit. More importantly, I shudder to think of the mistakes that easy money would have surely have tempted us into…

justin Wednesday, April 2, 2008 at 12:34 PM PT

Sramana, Dealing with VCs very early in the game is a big waste of time, My suggestion is to build a team based on your idea and execute. VCs will follow you, once you are making money πŸ™‚

Siftin-com Saturday, November 15, 2008 at 2:39 AM PT

Sramana: Great post and it looks like its true-er today than it may have been in 2007 when you first wrote it. Everyone who decided to bootstrap in the last 1-2 years is probably much happier today as it looks like most funded businesses are on the way to shutting down (see WSJ article today) – ofcourse the ones not generating revenues/profits as expected.

If one bootstraps – while there are downsides to it – the most important asset you build in the company is to be laser focused on revenues and profits which makes sure that you are taking the right decision every step along the way. I think bootstrapping is definitely the better way to go ( I have been part of a funded startup before so I have lived that life too) and I think there is an equal chance to build a large company whether its bootstrapped or VC funded (barring segments that need high Capex for kickoff).

Lastly, its really about having fun along the way.

Vaibhav Domkundwar - BetterLabs Thursday, February 12, 2009 at 2:17 PM PT

we’re doing the bootstrapping thing at, slicing things as thin as possible, keeping our burn rate close to zero. high fives to everyone who believes in the satisfaction and marketability of happiness.

b.vandgrift Thursday, February 12, 2009 at 2:18 PM PT

That’s right. In Entrepreneur Journeys (Volume 1) I have profiled 2 great case studies of bootstrapped entrepreneurs who have built large companies, including one that got to a multi-billion market cap.

There is no ceiling, really.

And in Volume 2, I have 12 case studies of bootstrapped entrepreneurs. That will be out this Spring.

Sramana Mitra Thursday, February 12, 2009 at 6:39 PM PT

Mr. Sanjeev Bhikchandani, Founder and CEO, InfoEdge India Limited pointed us that bootstrapping gives you the liberty to exercise your freedom. I too of little knowledge about “IPO” and “Venture capitalists” think that starting a startup is a thing of personal satisfaction and rather than monetary gains. I too will opt for financing my entrepreneurial idea on my own. However, time will only tell that what is the fate of Pro-bootstrap people like me….

I’d like to mention that your vision was correct when you thought ,“…Is there a trend here?

To answer this question, I will take the liberty of some speculation, some extrapolation, and some projection….”

Ashish Gourav Thursday, February 12, 2009 at 10:45 PM PT