You are on page 1of 3

9/30/2016

Bootstrapping
Topics

Reference

Simulator
Search Investopedia

Newsletters

Advisor Insights

Bootstrapping
You May Also Like: Learn to trade stocks with virtual money before you risk your own...

What is 'Bootstrapping'

Bootstrapping describes a situation in which an entrepreneur starts a company with little capital,
relying on money other than outside investments. An individual is said to be bootstrapping when he
attempts to found and build a company from personal finances or from the operating revenues of
the new company. Bootstrapping also describes a procedure used to calculate the zero-coupon yield
curve from market figures.

BREAKING DOWN 'Bootstrapping'

Bootstrapping a company occurs when a business owner starts a company with little to no assets.
This is in contrast to starting a company by first raising capital through angel investors or venture
capital firms. Instead, bootstrapped founders rely on personal savings, sweat equity, lean
operations, quick inventory turnover and a cash runway to become successful. For example, a
bootstrapped company may take preorders for its product, thereby using the funds generated from
the orders to actually build and deliver the product itself. In investment finance, bootstrapping is a
method that builds a spot rate curve for a zero-coupon bond.

Trading Center

Example of How Bootstrapping Is Used for Spot Rates

This methodology is essentially used to fill in the gaps between yields for Treasury securities or
Treasury coupon strips. For example, since the T-bills offered by the government are not available
for every time period, the bootstrapping method is used to fill in the missing figures to derive the
yield curve.
curve. The bootstrap method uses interpolation to determine the yields for Treasury zerocoupon securities with various maturities.

An Example of Bootstrapping a Business

Compared to using venture capital,


capital, bootstrapping can be beneficial because the entrepreneur is
able to maintain control over all decisions. On the downside
downside,, this form of financing may place
unnecessary financial risk on the entrepreneur. Furthermore, bootstrapping may not provide
enough investment for the company to become successful at a reasonable rate.
However, there have been many successful companies that started as a bootstrapped operation. For
example, the home search platform Estately was bootstrapped by its two founders, Galen Ward and
Douglas Cole. Ward quit his job in 2007 to start the company and convinced his partner to drop out
of graduate school to join him. With enough personal finances to live on for a year, the two cofounders invested $4,000 total to purchase a cheap server, pay for incorporation fees and maintain a
runway that could cover miscellaneous expenses.
The company grew from the $4,000 personal investment to a reported $1 million in revenue as of
Feb 26, 2014. It was also reported to have 17 employees. Additionally, bootstrapped companies,
even if they become successful, can still decide to take on future investments. In fact, this is often
the case when a successful company hits a growth plateau and uses outside investments to
accelerate its business.

http://www.investopedia.com/terms/b/bootstrapping.asp

1/3

9/30/2016

Bootstrapping
Topics

Reference

Test Your Skills With Trading Challenges

Simulator
Search Investopedia

Put your trading skills to the test with our free Stock Simulator. The ideal platform to get your
Advisor Insights
financial feet wet! Submit trades in a virtual environment before you start risking your own capital.
Click here to sign up today and start interacting with other traders from diverse backgrounds and
experiences, and learn the methods behind their trades to become a better investor.

Newsletters

Bootstrap
Video Definition
Loading the player...

Bootstrap is a situation in which an entrepreneur starts a company with little capital. An individual is
said to be boot strapping when he or she attempts to found and build a company from personal
finances or from the operating revenues of the new company.
Compared to using venture capital,
capital, boot strapping can be beneficial, as the entrepreneur is able to
maintain control over all decisions. On the downside, however, this form of financing may place
unnecessary financial risk on the entrepreneur. Furthermore, boot strapping may not provide
enough investment for the company to become successful at a reasonable rate.

BREAKING DOWN 'Bootstrap'

The term itself originates from the phrase "pulling oneself up by one's bootstraps," and
professionals who engage in bootstrapping are known as bootstrappers. These individuals typically
rely on personal savings and the earliest instances of revenue to begin funding their own startup
companies. This contrasts with other entrepreneurial actions, which may include contacting
external investors and other business professionals to begin funding their operations.
Read More +

http://www.investopedia.com/terms/b/bootstrapping.asp

2/3

9/30/2016

Bootstrapping
Topics

Reference

Simulator
Search Investopedia

Newsletters

Advisor Insights

Search Investopedia

DICTIONARY:

CONTENT LIBRARY
Articles

Terms

Stock Simulator

CONNECT WITH INVESTOPED

Videos
FXtrader

Guides

Slideshows

Exam Prep Quizzer

FAQs

Calculators

Chart Advisor

Net Worth Calculator

WORK WITH INVESTOPEDIA


About Us

Symbol

Advertise With Us

2016, Investopedia, LLC.

Stock Analysis

HcrI

GET FREE NEWSLETTE


Write For Us

Contact Us

All Rights Reserved

Careers

Terms Of Use

http://www.investopedia.com/terms/b/bootstrapping.asp

Newsletters

Privacy Policy

3/3

You might also like