What Is Bootstrapping, Really?

As recent as a few years ago, a startup was one of two things: bootstrapped or venture-funded. Over the past few years, more options have become available, even though most people still think in terms of the bootstrapping versus funding dichotomy.

Here are terms the startup community uses to describe the funding status of a company:

Bootstrapped: You started the business on your own, with limited resources, and grew it slowly over time as the business generated cash. This is the longer road, but it allows you to maintain complete control of the business and not answer to investors.

Venture-funded: You found investors (sometimes friends and family, but usually angel investors or venture capital firms) who were willing to write you a check to grow your company and raise your next round of funding in about 18 months. Rinse, repeat, and sell the company or IPO seven to ten years later for at least a billion dollars.

Self-funded: Some use this interchangeably with bootstrapping. I define it as being able to fund your next startup with your current resources.

Maybe you have a product generating $30,000 a month, so you’re able to invest $15,000 a month into your next effort. I did this when I started an email service provider called Drip. I invested between $150,000 and $200,000 of the profits from a prior SaaS company into building, launching, and growing Drip before we reached profitability.

I had that luxury because I had stair-stepped my way up from consulting during the day and building products at night to having a few small software products making $500 to $5,000 per month to a SaaS application that earned $25,000 to $30,000 per month and allowed me to enter the extremely competitive and lucrative market of email service providers.

Mostly bootstrapped: Some founders want to build a bootstrapped company but know that a bit of funding will help them get there faster. These funding rounds are usually in the $100,000 to $500,000 range, and they are raised from friends and family, non-venture-focused angel investors, and bootstrapper-friendly funds like the one I run, TinySeed.

I was blown away the first time I heard a founder talk about raising funding without the intention of following the path of traditional venture capital. That company is Customer.io, which raised its first round of $250,000 in 2012. Customer.io is now a highly profitable, eight-figure SaaS company.

They have since raised additional rounds of funding, but the founders still own the vast majority of the company, and they run it as if it were bootstrapped. It’s capital efficient, maintains healthy but steady growth, and focuses on serving its customers and team members rather than its investors. I would call them a mostly bootstrapped company. They don’t fit the technical definition of bootstrapped, but they are much closer to being bootstrapped than venture-funded.

Castos is another example. The founder, Craig Hewitt, saw a gap in the podcast hosting market and parlayed a podcast editing service into a WordPress plugin and then into a SaaS business called Castos. He grew the company profitably to six figures of annual recurring revenue before taking $120,000 in funding from TinySeed, followed a year or so later by an additional $756,000 in funding from follow-on investors.

Craig used his funding to expand their team, allowing him to grow top-line revenue and create room to expand the team even further. He didn’t sign a lease on a big office in the SOMA neighborhood of San Francisco or spend $50,000 on a billboard on Highway 101. Instead, he hired slowly and grew efficiently. Thus, I call Castos a mostly bootstrapped startup.

In this book, “bootstrapped” includes self-funded, bootstrapped, and mostly bootstrapped startups. The difference between having no money or a bit of money is insignificant compared to the chasm between bootstrapping and raising millions in venture capital to shoot for that “$1 billion valuation or bust.” It’s no longer a dichotomy of funding versus no funding; it’s about how you approach your company’s growth.

Do you aim to build a real product that sells to real customers who pay you real money? This book calls you “bootstrapped,” even if you raise a bit of money.

Do you aim to run your company near break-even, be capital efficient with your decisions, and potentially pull profits out over the long term (or sell if it makes sense)? This book calls you “bootstrapped,” even if you raise a bit of money.

Do you aim to avoid raising money from investors who want you to raise another round of funding every 18 months and consider it a failure if you don’t sell for $1 billion? This book calls you “bootstrapped,” even if you raise a bit of money.