Abstract

Research in entrepreneurial finance generally assumes that growth-oriented ventures lacking internal funds have to attract external finance or alternatively have to keep their growth ambitions in check. An often ignored alternative is that entrepreneurs resort to financial bootstrapping, defined as more or less creative techniques to reduce the need for more external finance (Ebben & Johnson, 2006; Winborg & Landström, 2001).

The value of bootstrapping for growth has been subject to much debate. Some scholars view bootstrap strategies as desirable strategies. Bootstrap finance does neither require a business plan nor collateral (Van Auken, 2005) and allows entrepreneurs to test strategies without pressure from external investors (Bhide, 1992). Others, however, view bootstrap strategies as second-best strategies, only to consider when insufficient external finance is available. Bootstrap strategies, especially those involving the use of social contacts without formal commitments, may have a high opportunity cost, given the uncertainty and possibility of opportunistic behavior (Starr & MacMillan, 1990). Moreover, a reduction of the operating asset base by actively implementing bootstrap strategies may constrain venture growth (Harrison et al., 2004). Given these opposing views, we pose the following question: how does the use of bootstrap strategies impact startup growth?

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