Angel Money: Bootstrapping Entrepreneur-Joshua D. Mosshart/Josh...

Angel Money: Bootstrapping Entrepreneur-Joshua D. Mosshart/Josh...: Bootstrapping is a creative way to finance your venture rather than traditional sources of funding like a bank. This is a highly resourc...

Bootstrapping Entrepreneur-Joshua D. Mosshart/Joshua Mosshart

Bootstrapping is a creative way to finance your venture rather than traditional sources of funding like a bank.

This is a highly resourceful way to fund your business when you have very limited capital.

Bootstrapping may include a major reduction in your current expenses.

Creative funding solutions may be utilizing personal earnings, tapping into personal savings, obtaining cash values from your insurance policies, maxing out personal credits cards, second mortgages, equipment loans, asset-backed lines of credit, loans against income streams (like annuities), cash for invoices, inventory lending, personal guarantees etc.

Developing you businesses products or services can make or break your company. The key is using existing relationships with suppliers and potential customers. Bootstrapping strategies for research and development (R&D) could include:

1. Prepaid licenses
2. Prepaid royalties
3. Advances from customers
4. Advances from suppliers
5. Cutting a deal for using product development facilities on weekends or after hours
6. Grants
7. Commercializing University-based research
8. Tax-credits
9. Monitizing purchase orders
10. Federal or state subsidies

Bootstrapping for Business building:

1. Forgone or delayed compensation
2. Working from home
3. Barter agreements
4. Special financing terms for customers
5. Buy used equipment
6. Borrow equipment from businesses
7. Hire part time workers
8. Lease equipment
9. Coordinate bulk purchases with other businesses
10. Buy on consignment from suppliers
11. Obtain lines of credit from suppliers
12. Share business premises with others
13. Employ relatives or friendsat below market salaries
14. Loans from friends and family
15. Paying employees with stock

                                          Strategic Bootstrapping Alliances

Building alliances is another form of bootstrapping to generate revenues and reduce costs. Business alliances are coorperative agreements with one or more businesses to utilize resources for mutual benefit.

Here are some of the benefits of forming a strategic alliance:

Faster market penetration, access to sales and marketing channels, co-product development, complementary products, joint venture versus competing for market share, joint bidding on projects, geographic knowledge, access to customer data, product credibility, economies of scale, gain skills, marketing leverage and manufacturing capabilities.

An effective bootstrapping alliance is good for the early-stage firm with inadequate resources, but these alliances might change once you reach a healthy cash flow with self-sufficiency. This could be a good alternative to funding when equity investors are hard to come by.


Joshua D. Mosshart Bio

Angel Money: Business Angels-Joshua D. Mosshart/Joshua Mosshart...

Angel Money: Business Angels-Joshua D. Mosshart/Joshua Mosshart...: Business Angel Investors are the largest, oldest, and the most often utilized funds outside of banks. In the U.S. alone it is estimated ...

Business Angels-Joshua D. Mosshart/Joshua Mosshart

Business Angel Investors are the largest, oldest, and the most often utilized funds outside of banks.

In the U.S. alone it is estimated that their is over five million angels, investing well over $80 billion in businesses each year. Angels fund forty to fifty times more businesses than venture capitalists and five times more capital.

Some of the most influential companies in the world were initially capitalized by angel investors like, Ford Motor Company, PayPal, Google, Facebook, Apple and Amazon.com to name a few.

Angel investors fund more than 65% of all new innovative technologies in the U.S. The biggest obstacle for any new business is to be sufficiently capitalized.

Important questions to ask are:

What are the angel investors investment criteria?
Example: Small businesses with annual growth rates projected below 20% are of little interest to angel investors.

What is the process to create better funding proposals?

What potential flaws may be removed from your business plan/executive summary to increase your chance of funding?

What is a realistic expectation of what you can demand from potential funding partners?

What is the criteria angel investors look for and the measures used to track performance?

                                                       Funding Life-Cycle

                       Seed/Start-Up Stage-Early Stage-Expansion Stage-Later Stage

Seed/Start-Up, concept or product development (typically one year or younger).

Early Stage, product or service in testing or pilot production, might be commercially available ( Less than five years).

Expansion Stage, product or service in production and commercially available.

Later Stage, company is generating ongoing revenue.

                                                     Angel Characteristics

Angel investors have a strong sense of social responsibility for their communities. They like to make a contribution to the business development process. They tend to act as consultants or mentors to the entrepreneurs. They like to invest regionally and are able to tolerate a loss of their entire investment.

Angel investors are considered "patient money", with long term investment time horizons. 

These investors have usually started their own own successful businesses in the past and are now looking to invest their money and their experience in innovative ventures.

Entrepreneurs need to include three things in their value proposition to angel investors.

You need to communicate a target rate of return between 10 to 20 times their investment with clarity on a time horizon. You must present to angels in an executive summary a clear path of achievable goals with measurable milstones between start-up to late-stage/exit.

When milstones are reached explain how risk is being mitigated and the value of the company increases at each benchmark.

Explain how second or third round investors will pay more for the investment when benchmarks are achieved at that time giving the angel an ideal of their timing on their projected Internal Rate of Return (IRR).

These investments tend to be a good hedge against the stock market. Angels tend to get good value for their money considering the high-risk reward trade-off.

Over 80% of net new jobs are created by less than 10% of small businesses in the U.S. Their is currently over a $50 billion dollar annual equity shortfall for entrepreneurs. Access to equity funding, not credit, is the major obstacle of job creation.

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