1. What sources of funding are available to entrepreneurs at the early stages of the company?
- Self-Funding: use personal resources to launch venture
- Moonlighting & part time consulting: founder is working a full time job to support self and business
- Bootstraping: being cost conscious (example; no/low rent, renting, used equipment, outsourcing)
- Family & Friends: not as worried about quick profits as professional investors are
- Micro-equity and Micro-loans: trade small ownership for substanable cash and connections to loaners network of entrepreneurs
- Bank loans: Borrow money, payed back with interest
- Factoring & supplier funding: Receive funds from a private lender, you secure those funds using purchase orders as security loans. Charge high interest.
2. what are “virtual” companies? What tools help them function? Why are they of interest to an entrepreneur?
- A virtual company is one that has no offices, no communication costs, low legal costs and so forth. They use providers such as Skype for video conferencing, Basecamp for team projects, and other sophisticated, free or low pay, tools to help function. Theyre a good resource to entrepreneurs without taking on long term liabilities.
3. Describe seven techniques for bootstraping that you could use if you started a company.
- No or Low Rent
- Cooperative Purchases
- Outsourcing
- Bartering for Goods and Services
- Renting or Leasing Equipment
- Used Equipment
- Trading Intellectual Property Rights
4. Why is bootstraping important for (a) closely held companies and (b) early stage, high-growth companies seeking equity investors?
- (a) can reduce costs from operations and overhead allowing the entrepreneur to become more proficient with their companies costs
- (b) by becoming more efficient and cost conscious the entrepreneur will be put in a stronger position to qualify for additional fundings from investors
5. What is meant by factoring of purchase orders?
- Using the purchase orders from customer to secure funding from private lenders. They receive the money from the customer and you get whats remaining after fees and interest has been applied.
6. How can suppliers help in providing working capital?
- Suppliers help because they give you a line of credit for your purchase orders. The mini case example showed that the company had a 150 day pay cycle allowing them to receive payments from customers before paying the supplier. They were able to use the suppliers cash to fund the company essentially.
I like your post because it is to the point! Don’t you think one of the most important reasons why a closely held company uses bootstrapping is because of the control issue? Maintaining control in the start of the company can be hard but it’s worth it since you don’t have to share the profits.
I like your post – it’s short yet very concise! I wish you would’ve explained the 7 bootstrapping techniques a little bit more. Other than that you were on point and answered the questions. Good job!