Description

TrendsVC PRO 0005 – Bootstrap Funds

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Problem
Founders of niche businesses struggle to find smart, aligned advisor networks.
Venture capital funds provide capital and guidance. But this comes with billion-dollar expectations.
SolutionBootstrap funds are built to provide funding, connections and thrive without billion-dollar exits.
In order to survive, VC funds rely on one or more companies to return the fund.
VC funds are built on the premise that most investments will fail or break even. This is a feature not a bug. But VC doesn’t work for most companies.
This model may work when major network or scale effects are at play. These are powerful forces that blunt competition and protect margins. Think Google, Facebook and Uber.
Bootstrap funds are designed for less extreme outcomes. They tend to invest post-traction and operate in niche markets.
Think Castos (podcast hosting), MakerPad (education) and StaticKit (developer tools).
These are not billion-dollar rocket ships or traditional small businesses.
Players
Bootstrap Funds
Earnest Capital
TinySeed
Indie.vc
Smash.vc
Portfolio Companies
MakerPad (Earnest Capital)
Yeluchi (Earnest Capital)
1 Second Everyday (Indie.vc & Earnest Capital)
Castos (TinySeed)
Nice (Indie.vc)
Hostifi (Earnest Capital)
StaticKit (TinySeed)
FirstBase (Earnest Capital)
MemberSpace (Earnest Capital)
Advisors
Courtland Allen (TinySeed)
Ruben Gamez (TinySeed)
Natalie Nagele (Earnest Capital)
Asia Orangio (TinySeed)
Hiten Shah (TinySeed)
David Heinemeier Hansson (Earnest Capital & TinySeed)
Rand Fishkin (TinySeed)
Kevin McArdle (Earnest Capital)
Patrick Campbell (TinySeed)
Laura Roeder (TinySeed)
PredictionsAdvisor networks will make or break bootstrap funds. Post-traction companies have no shortage of funding options. Founders are choosing bootstrap funds to align interests with and get access to experts.
Nearly all bootstrap fund LPs (limited partners) will be experienced advisors. Operators have capital to invest. Bootstrap funds will prefer to feed the flywheel rather than add deadweight.
Some companies will harness network/scale effects and jump from bootstrap funds to VC funds. Bootstrap funds will have a chance to exercise equity rights.
☁️ Opportunities
Study Islamic Finance to make better shared earnings agreements. Specifically profit and loss sharing. Sharia law prohibits interest payments and creates a natural experiment to study the history and practices of profit sharing.
Invest in a bootstrap fund.
Start a bootstrap fund in a meaningful niche.
Haters
“Bootstrap funds?! That’s an oxymoron.”
Yes. What’s life without a little cognitive dissonance? So roll with it.
“These companies have traction. They should not give up equity.”
Some founders beg to differ. They can find cheaper, non-dilutive capital but opt for bootstrap funds instead. Hint: It’s not about the capital. They want help.
Links
The Alternative Funding Options For SaaS Start-ups Cheat Sheet — Geoff Roberts
For Investors: What is a Shared Earnings Agreement and How does it compare to a SAFE? — Tyler Tringas
AMA with Tyler Tringas from Earnest Capital — Jacob Peters
Reflecting on My Failure to Build a Billion-Dollar Company — Sahil Lavingia
Why We’re Putting A Bunch of Our Savings into TinySeed — Rand Fishkin
Funding for Bootstrappers 2: What we learned — Tyler Tringas
Why Smash.vc is not vc — Travis Jamison
My Next Act: Building The First Startup Accelerator Designed for Bootstrappers — Rob Walling
Why venture capital doesn’t work for everyone — Eric Johnson