Why Start-ups Prefer Short-term, Internal Financing
Paula Kokare, Project Manager, Switzerland, Premium Member
Bootstrapping, being defined as a set of methods to enable companies to meet its financing needs without reaching out for long term external financing, is applied by 90% of start-ups at some point in time (Windborg and Landström, 2001). The application of these bootstrapping methods, as proven by Windborg (2009), by start-ups is pursued due to particular reasons and not necessarily only as a result of lack of options for external financing. Based on various reasons why bootstrapping is pursued by small businesses, the authors categorized following 3 groups of start-ups:
- RISK REDUCERS: Includes serial entrepreneurs with several years of experience in the sector. These entrepreneurs apply bootstrapping methods mainly in order to minimize dependence on external financing providers. However, they simultaneously recognize many different other benefits of bootstrapping.
- COST REDUCERS: Represents entre...