Does It Pay To Be Cheap, How Financial Bootstrapping Affects The Performance of New Ventures

This paper contributes to the entrepreneurial finance literature by exploring how bootstrapping affects new venture performance. It investigates whether the use of bootstrapping is a deliberate decision and builds upon entrepreneurs’ motives to resort to bootstrapping, their growth goals and their intended sources of financing to develop a framework of bootstrapping strategies entrepreneurs employ over time. This exploratory study is based on ten case studies of new ventures that offer web-based software solutions/services or online brokerage platforms. Our findings show that the use of bootstrapping changes over the life course of the new venture. Not only does the overall use of bootstrapping decrease as the company reaches its break-even point, it also varies with the bootstrapping strategy of the entrepreneur. We find evidence of three types of bootstrapping strategies: Long Term Bootstrapping, Milestone Bootstrapping and Adaptive Bootstrapping.