Bootstrapping: a popular funding model

March 7, 2008 12:37:47 AM PST
It's a "hard-knocks" technique that's become the prevailing funding model for Web 2.0, and some successful Internet companies say they are stronger because of it.

It's called bootstrapping -- a method of funding that leaves out the venture capitalist.

Madeit.com knows how to operate on a shoestring budget.

Through a friend of a friend, they found office space in downtown San Francisco for cheap -- and their logo and design was also done by a friend.

Everything else, the company pays for, in large part with credit cards.

Stephen Weir is CEO of the social events web site.

"So, how many credit cards do you have? I've got seven; I think twp just got cancelled. So, all of our credit ratings are just awful," said madeit.com CEO Stephen Weir.

It's all part of bootstrapping -- a term used when startups avoid external investors like venture capitalists.

Instead, companies search for any other funding source they can find.

It's a big change from the Internet's heyday, when start-ups would brag about raising millions of dollars.

"The toughest time we would buy food in bulk all the time just to save on costs," said Weir.

On Thursday Weir, along with other Internet entrepreneurs, including Craigslist founder Craig Newmark, got together to share their bootstrapping stories.

Sean Byrnes is the CEO of Flurry.

He says bootstrapping forced his company to get creative, by developing special software that eliminated the need to hire hundreds of workers.

"It was really hard, it took us nine months to do it, which is a long time in engineering, but we did it and that forms the basis of a lot of what the advantage we have as a company because we built this technology platform that gives us an advantage in economics," said Flurry CEO Sean Byrnes.

Those in the web 2.0 community say bootstrapping is how most start-ups are being funded these days.

Weir says it has given his company a lot of freedom to do whatever it wants. But just as important, the time that would be used to secure financial backers is instead used to focus on their product.

"I think we can definitely move a lot faster. We moved the businesses from one country to another, developed the service and launched it in seven months," said Weir.

And in seven weeks, madeit.com plans to launch a new service, which they believe will finally enable the company to make some money.


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