It wasn’t until I had started helping entrepreneurs in Maine that I really started asking the question: where does funding for most young companies come from? Maine has some venture capital, but not a lot. I stumbled across references to founders that bootstrap their businesses. In particular I read some of the blogs and books from Sramana Mitra, an avid proponent of bootstrapping as an alternative to equity funding.
In the course of my research I came across a reference to a startling statistic. I was surprised and a bit skeptical. Could it be that more than 80% of the fastest growing private companies in the US – the INC 500 – did not have any outside equity?
I eventually dug down to the source. I had to buy the book to check it out.
Harvard Study Reveals Bootstrap Founders
The study behind the book is possibly the broadest look at fast-growing companies. Author Amar Bhidé was teaching at Harvard Business School at the time. With research assistants’ help he tracked down 100 of the 1989 INC 500 companies and conducted extensive interviews with them. All companies were no older than 8 years old.
This quote from the preface stands out: “More than 80 percent of the Inc. founders I studied bootstrapped their ventures with modest funds derived from personal savings, credit cards, second mortgages and so on; the median start-up capital was about $10,000. Only 5 percent raised their initial equity from professional venture capitalists.”
And the author later reported that “fewer than one-fifth of the bootstrappers had raised equity for follow-on financing in the five or more years that they had been in business. They relied on debt or retained earnings to grow.”