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Common and recent approaches for starting high-tech companies without relying on Venture Capital.
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Benyamin Lichtenstein, Ph.D.
Prof. of Entrepreneurship and Management
University of Massachusetts, Boston
Jerusalem Business Network Forum – January, 2013
© Benyamin Lichtenstein – Please cite source, and do not reproduce without permission
Big Belly – case study
Solar Trash Compacting System
Big Belly – Start-up Funding
2003: Opportunity is huge
Self-fund + Biz Competitions
Field research Customer, order… Worked like crazy; shipped 1st product.
Year 2 funding – bootstrapping Parents @ $12,500;
Former internship boss @ $25,000
Biz Competitions $20,000
Funds 20 more units
Year 3 – Venture Capital
How are YOU funding your venture?
Goals for this presentation
1. Well-known funding approaches
2. Alternative funding approaches
3. Unique funding approaches to consider
4. Bootstrapping
5. Research on Venture Capital
6. Your perspectives, questions, etc.
Venture Capital
Benefits!
But Challenges….
0.1% of companies receive V.C. $
V.C. funded more likely to FAIL
Friends, Family & ‘Fools’
Think BROADLY about social networks
Self-Funding can include:
Salary from another job
Life insurance – cash value
Investments – low-interest margin loans
Retirement – borrow up to 50% in US, or short-term loans from IRA
Credit cards…
Angel Investors, Angel groups
Bank Loans? Private Equity?
2. Alternative Funding Methods
Usually for Established Businesses
Factoring – $$ for Accounts Payable
Equipment Sale-Leaseback
Venture Debt
Interest only, then principle
Equity only upon sale
Micro-Loans – up to $100,000
3. Unique Ideas to consider:
Crowdsourcing
Customer Capital
Strategic Partners
Crowdsourcing
e.g. Kickstarter.com
‘Crowd of Backers’
100% of goal, or nothing
Product + prizes
Successful tact ics
Video = increases 114%
Updates every five days
= 400% more $
Customer Capital
Customer/ Client as investor
Exchange resource for immediate use
Client as ‘incubator’
First customers as beta test sites
Relationships – trust, honesty
Feedback early and fast
Introductions to other target customers
Strategic Partnerships
Collaborations for mutual benefit
‘Spreadsheet benefits’
Expand business models by:
Strategic Partnerships
Expanding Markets
Marketing / Awareness / Information
More Targets through
○ e.g. Niche Mass Market
○ Local – National – International
○ B2B / B2C / Government? Institutions?
Community?
Strategic Partnerships
Increasing Strategic Benefits
Complementary services
Innovation resources, markets
Expertise opportunities
Strategic Partnerships
Reducing costs, Gaining revenues
Acquisition of resources, activities
Optimization, Economy of scale
Reduction of risk and uncertainty
4. Bootstrapping
Quick revenue
Sony
3M
Service-based first, then develop product
Allows time to match
customer needs
4. Bootstrapping
Cash Flow improvements
Customer – incentives to speed up payments
Suppliers – slow down payables, special terms
Resources – beg, borrow, share
Labor Costs
Temp workers
Defer salary
4. Bootstrapping
Gain Traction
Legitimize Business
to investors
5. Getting V.C. – Research
Increase likelihood and amount:
Market = bigger; Competition = less strong
Industry experience
Later stage: proven biz model & management
Bootstrapping: more = better
Media mentions: “sense-giving”
Easy to work with team (!)
5. Getting V.C. – Your Findings
Your experiences
Other examples
