Editor’s Note: The following is the weekly feature, Today’s Trend, from the Small Business Trends Radio program of April 11, 2006.
Anyone who became an entrepreneur before or during the DotCom boom days of the late 1990s and early 2000s, soon became aware of all the easy money.
Or so they thought.
Who among us has not heard a story that goes something like this: an entrepreneur scribbled an idea for an Internet business on a sheet of paper or even the back of a napkin, and managed to get some venture capital firm to invest millions in it.
Not that I personally know of anyone who successfully used the back-of-the-napkin business plan. But it makes a great story. It’s become an urban legend.
Which brings me around to Today’s Trend. It seems that for a period of several years we were all fixated on venture capital. VC money. Other people’s money. It seemed like money was there for the asking. You just needed to be aggressive enough to go out and get it.
The DotCom crash in 2001 taught us otherwise. Suddenly those VCs were not as friendly anymore. The flow of new fundings dried up. The market for IPOs (initial public offerings) — the end-game for most VCs — dropped out. Reality set in.
Today, with the benefit of hindsight, we see that time as an aberration. Yes there are still technology companies that are getting millions of dollars. But they are few and far between. According to 2002 figures from the Kauffman Foundation’s Global Entrepreneurship Monitor, only 38 in 100,000 businesses received VC money worldwide.
Most entrepreneurs today realize that they have to fund their businesses on their own. The 4 main sources of funding are:
- credit cards
- investments from family and friends
- small business bank loans, including SBA loans
- customer funding, or what is also known as bootstrapping
Bootstrapping for most small businesses is going to be the main path toward success. Even if you use your credit cards for initial business expenditures, eventually you have to pay those charges back. Money coming in the door from selling your products or services to customers is the ultimate source of financing for the vast majority of small businesses.
Yes, we went through a period of several years where we got confused and thought VC money was the answer. Today we know better. In fact, it has become the “in” thing to finance your own business. Bootstrapping is where it’s at today.
And that concludes Today’s Trend.
To listen to the Small Business Trends Radio program that included this segment, go to “How to Start a Business with No Money” for download options and show notes.