Entrepreneurship, 6th Edition

11Raising Money for Starting and Growing a Business

Airbnb founders Nathan Blecharczyk, Brian Chesky, and Joe Gebbia.

A new business searching for capital has no track record to present to potential investors and lenders. All it has is a plan—sometimes written, sometimes not—that projects its future performance. This means that it is very difficult to raise debt financing from conventional banks because they require as many as three years of actual—not projected—financial statements and assets that adequately cover the loan. Thus almost every new business raises its initial money from the founders themselves and what we call informal investors: family, friends, neighbors, work colleagues, and strangers; an increasing number raise it from crowdfunding; a few raise it from lending institutions, primarily banks; and a miniscule number raise it from venture capitalists, who are sometimes called formal investors.

Bootstrapping New Ventures

Most entrepreneurs start by bootstrapping their business. Bootstrapping is starting your business with the resources at hand without seeking outside capital. Founders basically self‐fund and conserve spending by working out of their home, using existing equipment and computers, and not paying themselves or co‐founders any salary. Once entrepreneurs gain some traction, such as developing a rudimentary prototype, they have evidence that the ...