the use of bootstrapping by women

The Use of Bootstrapping by WomenEntrepreneurs in Positioning for Growth

CANDIDA G. BRUSH*, NANCY M. CARTER**,ELIZABETH J. GATEWOOD{, PATRICIA G. GREENE*, &MYRA M. HART{

*The Blank Center, Babson College, Babson Park, MA, USA **Catalyst Inc and University of St Thomas,

Minneapolis, MN, USA {Wake Forest University, Winston Salem, NC, USA {Harvard Business School,

Boston, MA, USA

(Accepted 7 October 2005)

ABSTRACT The number of women entrepreneurs is rising rapidly and many are creatingsubstantial businesses. For most women-led ventures, growth is funded by personal investment anddebt, although a small percentage draw on private equity investment to fuel high growth. Of thosethat seek growth, not only do they face higher obstacles in obtaining capital, but little is known aboutways they position ventures for growth. This paper addresses the question: ‘How do women developfinancing strategies to prove the business concept, meet early stage milestones, and demonstrate toexternal investors the value and potential of their businesses?’ Data are drawn from phone interviewswith 88 US female entrepreneurs seeking an equity investment to grow their businesses. The analysisexamines the correspondence between bootstrapping and stage of business development. Results showsignificant differences in the use of bootstrap options utilized by women-led ventures dependingon stage of business development. Companies that have not achieved sales were more likely toemphasize bootstrapping to reduce labour, while those companies with greater sales were more likelyto minimize cost of operations. Implications for future research and education are suggested.

KEY WORDS: Women entrepreneurs, bootsrapping, private equity, growth

Introduction

Women are majority owners of 30% (6.7 million) of all privately held firms in theUnited States and own at least a 50% share of 46% (10.1 million) of suchenterprises.1 These firms boast $1.2 trillion in revenues and employ 19.1 millionemployees (CWBR, 2004). Although the number and importance of women-ledventures grew substantially over the past two decades, most of the firms are smallerthan average with only 16% achieving revenues of more than $500 000 (Brush et al.,

The authors of this paper are listed alphabetically because their respective contributions are equal.

Correspondence Address: Professor Candida Brush, President’s Chair in Entrepreneurship, Chair:

Entrepreneurship Division, Babson College, The Blank Center, Babson Park, Massachusetts, MA

02457, USA. Tel: þ1 (781) 239 5014; Fax: þ1 (781) 239 4178; Email: [email protected]

Venture Capital,Vol. 8, No. 1, 15 – 31, January 2006

ISSN 1369-1066 Print/1464-5343 Online/06/010015-17 � 2006 Taylor & Francis

DOI: 10.1080/13691060500433975

2003; CWBR, 2004). Approximately 280 000 US women-led businesses had annualsales over $1 million in revenues. Even among this subset of larger firms, the majorityare financed through the use of personal savings, credit card, personal debt and somecommercial debt. Very few were able to draw on the financial resources provided byventure capitalists. Statistics indicate that less than 5% of all equity investments weremade in women-led firms (Greene et al., 2001).

The trends in the US are similar to those in other countries. Women worldwide areactively launching and managing entrepreneurial ventures. While the GlobalEntrepreneurship Monitor (GEM) project shows that women in most countriesare starting ventures at a lower rate than men, women’s entrepreneurial activity isgreater than 30% in many countries (Minniti et al., 2004). Other research has shownthat the percentage of women-owned businesses is more than 30% in Canada,Denmark, Finland and New Zealand (Greene et al., 2005).

But, as in the US, men-owned businesses tend to be larger and financially stronger.This may be related to access to growth capital. For instance, in Canada,approximately 43 000 women-headed firms meet F Capital’s (Canada’s only venturecapital firm catering to women) investment criteria—at least three years ofoperations, over $500 000 in annual revenues and business focus on life sciences ortechnology. Yet, only 5% of all venture capital in Canada goes to businesses headedby women (Jennings and Cash, 2006). And in Northern Ireland, it has been reportedthat even though women aspire to grow ventures, they receive a small proportion ofprivate equity (Henry et al., 2006).

There are many hypotheses for why women-led businesses receive such a low shareof equity investment. Some suggest that women choose not to grow their ventures, orthat they lack the experience or management capabilities, while others argue thatwomen start businesses in low growth, highly competitive sectors unattractive toequity providers. But emerging research shows that aspiring women who succeedin acquiring equity are those with high technology or biotechnology ventures, whohave access to financial networks (Brush et al., 2003; Carter et al., 2003). Yet, evenfor these women entrepreneurs, acquiring equity is an enormous challenge.

It has been argued that most small and new firms face greater obstacles inobtaining capital than their older and larger counterparts because of informationasymmetries, lack of market access, and idiosyncratic forces such as the influence ofthe entrepreneur on financing and capital structure choices (Cassar, 2001). In orderto overcome these challenges, entrepreneurs must prove their concepts and gainmarket acceptance. During this time, entrepreneurs generally use personal orinternally generated funds, and then control costs and manage capital expendituresto achieve benchmarks. This process of internal funding is known as ‘bootstrapping’.It is a strategy for financing a small firm through the creative acquisition and use ofresources without raising equity or borrowing money (Bhide, 1992; Freear et al.,1995; Van Osnabrugge and Robinson, 2000). Bootstrapping generally takes twoforms: first, to minimize the need for financing by securing resources at little or nocost; and second, to creatively acquire resources without using bank financing orequity (Freear et al., 1995; Landstrom and Winborg, 1995; Bhide, 2000; Harrison etal., 2004). The process enables the entrepreneur to maintain cash and manage thebusiness in a resourceful and creative manner (Bhide, 2000). Founders who learn tobootstrap their businesses effectively gain legitimacy in the eyes of stakeholders

16 C. G. Brush et al.

(Freear et al., 1991). Further, bootstrapping (e.g. use of credit cards) is an easy wayto obtain capital often without collateral, which can be detrimental if used to excessor inappropriately (Van Auken, 2005). But, more often, bootstrapping assists in thedevelopment of knowledge, and human and technical resources, and these activitiesmay help the entrepreneur to develop a ‘lean’ mindset (Harrison et al., 2004). Thisprocess should increase their likelihood of acquiring growth capital in the next stageto fuel growth, and has the added benefit of retaining a higher percentage of founderownership.

There are several studies that address venture bootstrapping, but none explorethe specific practices women entrepreneurs use to position their firms for growth(Freear et al., 1991; Freear et al., 1995; Landstrom and Winborg, 1995; Winborg andLandstrom, 1997; Mason and Harrison, 1999; Van Auken, 2001; Gatewood et al.,2003; Harrison et al., 2004; Van Auken, 2005). Given the growth, presence andcontributions of women-led businesses, it is surprising that this population is omittedfrom research. Furthermore, a better understanding of how women successfullybootstrap their businesses to increase chances of acquiring later investment canprovide valuable advice for women seeking to grow their businesses. Therefore, ourstudy is guided by the following question: ‘What financing strategies do women useto prove their business concept, meet early stage milestones and demonstrate toexternal investors the value and potential of their businesses?’

Using data drawn from 88 female entrepreneurs seeking an equity investment togrow their businesses, we examined the effect of bootstrapping on stage of businessdevelopment. The following sections include a review of the literature, methodology,results and a discussion of findings and implications.

Background

The growth of a new venture is grounded in the entrepreneur’s expectations for thefuture of the business and the deployment of productive resources (Penrose, 1959). Itis the entrepreneur’s ability to acquire and leverage resources productively thatdistinguishes those enterprises able to achieve high growth. In addition, the nature ofthe business concept, strategic direction, commitment and focus, attitudes towardsrisk and uncertainty, managerial skill and environmental conditions all contribute tothe rate and scope of a firm’s growth (Penrose, 1959). Many different resource typesare required (e.g. social, human, organizational, technical), but financial capital isone of the most important resources because it enables the acquisition of additionalhuman, physical and technological resources. (Greene et al., 1997; Bhide, 2000).

Financial resources can come from multiple sources, including personal savings,family and friends, banks, angels, and suppliers, and are cash or cash equivalents(Bygrave, 1992; Freear et al., 1991; Petty and Bygrave, 1993). Financial capital is aninstrumental resource in that it can be used to develop and expand other resources(Brush et al., 2001). The task of identifying, attracting and persuading financialresource suppliers to commit to the venture is often the single biggest obstacle anentrepreneur faces (Scott, 1987; Katz and Gartner, 1988; Bhide, 2000).

This challenge is even greater for high-growth entrepreneurs, whose appetite forlarge amounts of capital may require equity investors. Investors are always seekinggood opportunities, but frequently have more investment possibilities than they can

Positioning for Growth 17

or will choose to fund. Investors use widely varying criteria for determining whichinvestments best ‘fit’ their portfolio, and these criteria may not fit with the strategicvision of the entrepreneur (Timmons and Sapienza, 1992; Timmons, 1997; Bhide,2000; Van Osnabrugge and Robinson, 2000).

Entrepreneurs who use ‘capital raising ingenuity’ are most likely to acquire financialresources needed for growth (Penrose, 1959); this creative ingenuity, or bootstrapping,can serve to better position a venture for growth. Approaches to bootstrapping fallgenerally into four types of activities (Landstrom andWinborg, 1995; Van Osnabruggeand Robinson, 2000; VanAuken, 2001, 2005; Harrison, et al., 2004):

(1) Bootstrapping product development—using customers and suppliers to financeresearch and development and operations (e.g. pre-paid expenses, royalties,special deals on access to product hardware);

(2) Bootstrapping business development—using owner’s cash to sustain business(e.g. personal savings, working from home, personal credit cards);

(3) Bootstrapping to minimize need for capital—limiting cash flow and expenses(e.g. borrowing equipment, employing used equipment, using temporaryemployees; trade credit);

(4) Bootstrapping to meet the need for capital—raising cash and money to meetshort term needs (e.g. withholding or delaying owner’s salary, delaying paymentto suppliers, loans from friends and relatives).

Our contention is that use of these approaches to bootstrapping will demonstrateto potential investors that the product or service is adequately developed and thatthe women entrepreneurs have the necessary financial savvy to generate internalfunds and control costs in a creative way. Effective execution of these activities showsthe firm can generate sufficient demand in the marketplace to satisfy growthexpectations of investors and their expected return on investment.

Hypotheses

Approaches to resource acquisition vary throughout the course of development of abusiness (Cassar, 2001; Van Auken, 2001; Winborg and Landstrom, 2001). As firmsmove from emergent, to early and finally later stage growth, their resource andfinancing needs change because they are engaged in different activities (Churchill andLewis, 1983; Timmons, 1997). Emergent ventures need money to get products/services developed for market, while later stage businesses use cash to hire employeesand expand (Bhide, 2000).

Myers’ Pecking Order of Capital Structure Theory asserts that informationasymmetries and monitoring costs will focus a firm’s attention on different sourcesof capital at different times, taking into account the cost of debt and equity(Myers, 1984). It is argued that firms will start with more flexible internal sources(personal funding), move to less flexible external sources (debt), and finally moreexpensive sources (equity) over the course of business development. Mostentrepreneurs will seek funds in a hierarchical pattern, starting with internalfunding (bootstrapping), followed by bank financing (debt) and, finally, equitycapital financing (Cassar, 2001).


Hypothesis 1: Bootstrapping activities will vary by stage of business development.

Because most ventures are founded with personal funding, entrepreneurs aremotivated to generate sales as fast as possible. This requires that they engage inactivities designed to get the business operational quickly. For bootstrapping thisusually means taking action to develop the product/service and to get it into themarketplace as economically as possible (Bhide, 2000). Activities like usingtemporary employees to produce products, using their own savings, or employingcustomer financing would be priorities (Winborg and Landstrom, 2001). This leadsus to hypothesize that:

Hypothesis 2: Emergent businesses will concentrate on bootstrapping product andbusiness development more than businesses in early or rapid growth stages.

Empirical studies also show that rarely is only one source of financing used (Scheeret al., 1993). In addition, high growth ventures tend to use personal savings, bankloans and other internal sources as a precursor to equity (Florin and Schulze, 2000).There also is strong evidence that ventures engage in a variety of bootstrappingactivities at the same time, some designed to minimize costs, other activities intendedto meet needs for cash or develop the business (Van Osnabrugge and Robinson, 2000;Van Auken, 2001, 2005; Harrison et al., 2004). The entrepreneur(s) must not onlymanage product/service development but also put into place systems for managingand supporting the company’s growth. Some ventures put more effort intobootstrapping than others (Carter and Van Auken, 2005). Because the purpose ofbootstrapping is to position the firm for growth by demonstrating product feasibility,cash management capability and customer acceptance, it is reasonable to expect thatthe importance of bootstrapping activities would also vary with the evolution of theventure. For a venture in the early growth phase with customer sales and a developedproduct, the importance of bootstrapping might be greater than during the emergentstage because of the need to position for additional investment by both minimizingexpenses and meeting cash needs.

Hypothesis 3: Early growth stage businesses will exhibit greater importance ofbootstrapping than those firms in emergent or rapid growth stages.

According to Myers (1984), firms that already have acquired equity will be less likelyto give importance to bootstrapping. This idea was supported by Carter and VanAuken (2005) who found those entrepreneurs perceiving their ventures to be morerisky were more likely to put more effort into bootstrapping. Coleman and Cohn(1999) argue that small firms rely first on retained earnings and personal sourcesbefore turning to external sources of funding in order to avoid the costs ofmonitoring and information gathering. However, once equity capital has beenraised, it is likely that bootstrapping activities will cease. Future rounds of fundingcarry less access costs as the time spent to acquire following rounds of financing issignificantly less than for the first round (Bruno and Tyebjee, 1985). Once a firm hasacquired equity, it will in effect have ‘slack’ resources, at least for a foreseeable time.If the entrepreneur expects to grow and the need for growth capital again exists, the


entrepreneur is more likely to perceive equity investment as the appropriate pathwayfor funding (Bruno and Tyebjee, 1985). Finally, equity investors will focus theentrepreneur’s attention on strategic, marketing and product issues, as one of theirprimary goals will be revenue growth (Bygrave et al., 1999). The equity investors willexpect to assist the entrepreneur in raising any additionally needed funds from otherequity investors, replacing the need for bootstrapping (Gorman and Sahlman, 1989).These arguments lead us to hypothesize that:

Hypothesis 4: Businesses with equity investments will reduce their bootstrappingactivities.

Methodology

The sample for the study was women entrepreneurs who applied to Springboard2000 Forums in Silicon Valley (San Francisco) and Mid-Atlantic (Washington, DC)during 1999. The Forums were developed to showcase women-led ventures topotential investors.2 We chose this sample specifically because we felt they would bemost likely to engage in bootstrapping behaviour as a precursor to seeking equityfunding. All applicants to the Forums were seeking equity to fund rapid growth andthe majority were technology- or bioscience-based businesses. Eligibility forparticipation in the Forums required that one of the owners and key managers onthe start-up team was a woman. Successful women applicants made presentationsrequesting an equity investment to an audience of venture capitalists, angels andcorporate fund managers.

We first sent a letter and email to our Springboard applicant sample (n¼ 466) askingthem to participate in a study on business owners seeking venture capital. The letterinformed them that theywould be contactedwithin a few days for a phone interview andoffered a $25 gratuity for their participation.A second email was sent reminding themofthe upcoming phone call and distributing visual aids displaying categories of responsesto questions that would be used during the interview. The respondents were encouragedto keep the visual aids handy to their phone so they could refer to them during the call,shortening the amount of time needed to complete the interview.

Phone interviews were conducted by a national, independent market research firm.Of the 466 eligible businesses, 171 of the entrepreneurs could not be reached becausethe application listed a wrong phone number, a fax or international phone number;the phone had been disconnected, or the female entrepreneur was not availableduring the study period (e.g. out of the country). Interviews averaging 62 minutes(36 minutes shortest; 113 minutes longest) were completed with 100 entrepreneurs. Anumber of other entrepreneurs in the sample had put off the interviewers severaltimes during the study period asking the market research firm to call back at a moreconvenient time, but not refusing to participate.

Three of the 100 respondents reported that their company was substantially olderthan seven years. We eliminated those three from the analyses. Of the remainingrespondents, 89 reported that their companies were in the Information Technology(IT) sector, three in biotech, and five refused to indicate industry sector. Since equityfinancing is industry specific, we retained for analyses only the 89 that reported being


in IT, and of these one respondent refused to answer any of the bootstrappingquestions of interest leaving data from 88 interviews for analyses.

Measures

Dependent Variable

The dependent variable of interest was the stage of business development (Timmons,1997). We used sales revenue as a proxy measure, reasoning that various levels ofrevenues corresponded to the developmental stage of businesses. During the phoneinterview respondents were asked to categorize the approximate annual gross salesof the business during 2000 into one of 10 range categories. We collapsed the10 categories into three representing emergent, early growth, and rapid growthbusinesses. Emergent was represented as not yet having achieved first sales. Aboutone-third of the sample (31%) fell into this stage. The early growth stage wasrepresented as having sales up to a quarter million dollars ($1 and $249 999). Wereasoned that during this stage of the business’ development, the first formalexchanges were occurring between the firm and major stakeholders in theenvironment. Slightly over one-third of the sample fell into this category (40%).The rapid growth stage of development was defined as having greater than $250 000in annual sales. Companies in this category (28%) were thought to have clearlyestablished customers and suppliers and were on a more rapid growth trajectory.

Independent Variables

(a) Bootstrap financing. Using items developed by Landstrom and Winborg (1995)and used previously by Van Osnabrugge and Robinson (2000); Winborg andLandstrom (2001); Van Auken (2001, 2005) and Harrison et al. (2004), we askedrespondents about their use of various bootstrapping options. Interviewersinstructed respondents to refer to the visual aid listing potential sources of fundingand asked them to indicate whether or not they used the source to fund theircompany. Each option was dummy coded: used¼ 1; not used¼ 0. If the respondentreported using a bootstrapping option, they were further asked to indicate howimportant the option was in financing their business over the past year on a five-point scale ranging from very important (5) to very unimportant (1). We created anew scale for each bootstrapping option by multiplying the extent of importancethey had assigned to it by whether they had used the option. This yielded a scale foreach option ranging from 0 to 5 with 0 indicating they had not used the option (thus,of no importance), and 5 indicating they had used an option and it was of greatimportance in their current financing strategy.

(b) Number of bootstrapping options. We determined the number of bootstrappingoptions by tallying the number of options used by the company.

(c) Importance of bootstrapping. The importance of bootstrapping was determinedby the total importance given to bootstrapping as a part of the firms’ financingstrategy. We measured this by summing the importance values for all bootstrapping


options used by the firm and dividing by the number of options used. Because thedistribution of the variable was skewed we adopt the square root of the value tosmooth the distribution.

(d) Outside funding. The interviewer asked whether the business had ever received anequity investment prior to their application to the Springboard 2000 Forum, and if so,how much had been received. Interviewers defined outside funding for the respondentby stating that ‘most businesses have two types of investments: (1) ownership or equity;and (2) loans or debt. Those who own equity in the business usually expect to receive ashare of the profits. Loans or debt usually must be paid back and often there is interest.The question asked: ‘Has this business ever received an equity investment other thanfrom yourself or the start-up team, or not?’ The business was determined to have anequity investment if the respondent: (1) reported the amount of equity that had beenreceived and reported using at least one of six equity sources that were listed later in theinterview; or (2) if they reported having received equity but failed to report the amount,they were phoned in a follow-up interview to verify that they had received equityfunding prior to the date of the first phone interview. If they could not be contacted inthe follow-up interview, open-ended responses on the surveywere used to verifywhetherthey had received equity. Outside financing was dummy coded one (1) if they met theequity funding criteria, or zero (0) if they had yet to receive an equity investment. Forty-two (48%) of the respondents met the equity requirement. Forty-six (52%) weredetermined to be still seeking their first external equity investment when they submittedtheir Springboard application.

Control Variable

Age of the firm at the time of the phone interview was computed from questionsasking the respondent to report the month and year the company was started. Firmage ranged from less than one to seven years old, with the average being two years.

Findings

Table 1 displays descriptive statistics of the sample and shows that almost all firmshoped to grow, with only 7% wanting to control the growth of the business so thatthey could manage it themselves with only a few key employees; and 94% seekingnational or global scope of operations. Seventy per cent of the founders reportedworking for at least one start-up company prior to the one being reported on in thisstudy, and 56% reported having an equity stake in a prior start-up company. Morethan 18% of the founders had MBAs, 31% had Master’s in other fields, and 5% hadPhDs. For almost 30%, their degree was in technology or science. The founders hadworked just over 10 (11.1) years in the industry of the new start-up, and had almost20 years of full-time work experience (19.01).

As a first step, we conducted a factor analysis of the bootstrapping options.Table 2 reports these results. Our measures capture the extent to which differentitems are relatively more or less important. Although somewhat low, the Cronbachalpha reliability coefficients for each factor are within a range acceptable forexploratory research. This is consistent with previous work suggesting that financing


patterns are hierarchical depending on stage of development (Florin and Schulze,2000), size and intent to grow (Cassar, 2001).

For this analysis, we used 14 of the 18 bootstrapping options. Three of the omittedoptions were not pertinent to firms that had no sales (31% of the firms in our samplehad yet to achieve first sale), and the fourth was highly skewed as only four of the 88respondents had used the option.3 All factor loadings met the recommended cut-offrate, with the lowest being 0.55. The analysis yielded six factors, which explained69% of the total variance. It should be noted that for the sixth factor we retainedonly the item measuring delaying founder compensation because the two items onthis factor are highly negatively correlated.

Table 3 illustrates how the factors map to previous bootstrapping frameworksadvanced in the literature (Freear et al., 1995; Winborg and Landstrom, 1997).Prior frameworks segmented bootstrapping options into four categories: (1)Bootstrap product development; (2) Bootstrap business development; (3) Bootstrapto minimize need for capital; and (4) Bootstrap to meet need for capital. Ourresults indicate that further refinement is warranted. We found two factors relatedto minimizing the need for capital, one focused on minimizing capital needed for‘tangible assets’ (e.g. inventory and equipment); the other related to reducingcapital needed to support people (e.g. using employees to finance the operation).We also found two factors related to meeting the need for capital. One relates tosecuring money from those the founders trust and love (and probably don’t haveto put up collateral to obtain); the other to delaying or forgoing salary for thefounding team.

To test the hypotheses we computed independent variables from the factor ana-lysis of the bootstrapping options that represent the six constructs displayed in

Table 1. Sample descriptive statistics

Percentage Mean s.d.

Growth intentionControl growth 7Grow steadily 21Grow rapidly 72

Intended business scopeLocal community 4Regional 2National 36National with a few international branches 19Global 38

Founders with prior start-up experience 70Founders with prior start-up ownership 56Founder’s years full-time work 19.01 8.94Founder’s years working in start-up’s industry 11.10 9.22Founder’s educationMBA 18Other Masters 31Doctoral degree 5

Founder’s degree emphasisTechnology or science 27


Table

2.Factorloadingsforbootstrappingitem

s:sixfactorsolution,N¼88

12

34

56

Factor

Own

Money

Minim

ize

OperationCosts

Develop

Product

Close

Ties

Capital

Minim

ize

LabourCosts

Owner

Labour

Sum

ofsquaredrotatedloadings

1.90

1.81

1.69

1.54

1.48

1.19

Percentagevariance

accountedfor

13.54

12.99

12.07

10.99

10.55

8.49

Cronbach

alpha

0.63

0.68

0.59

0.71

0.54

Personalcreditcards

0.78

Businesscreditcards

0.70

Personalsavings

0.56

Leasingequipment

0.85

Creditfrom

supplier

0.73

Tem

porary

personnel

0.75

Customer

funded

R&D

0.71

Advancesfrom

customersorlicenses

0.69

Loansfrom

partnersfamilyandfriends

0.80

Loansfrom

familyandfriends

0.78

Payem

ployeeswithstock

0.80

Dealswithserviceproviders

0.79

Delayed

team

compensation

0.80

Personalbankloan

70.55


Table 3. We summed the scores associated with each of the items and divided by thenumber of items in the scale.

Table 3 shows how the six bootstrapping factors are consistent with previouswork suggesting that financing patterns are heirarchical depending on stage ofdevelopment (Florin and Schulze, 2000), size and intent grow (Cassar, 2001). Table 4presents the correlation matrix of the independent variables (computed from factorscores) and the control variable.

To test Hypothesis 1—the speculation that there will be variation inbootstrapping by stage of business development—we performed a discriminantfunction analysis. The discriminant variables were entered stepwise according tothe Wilks’ Lambda criterion. Stepwise analysis was appropriate, because therelationship between the discriminant variables and the business development stagewas not known from previous research. The functions were rotated using varimaxrotation to aid in the interpretation of the functions’ meaning. The discriminantanalysis revealed two functions: the first had an eigenvalue of 0.444 accounting for86% of the variance with a canonical correlation of 0.554; the second had aneigenvalue of 0.073 accounting for 14% of the variance. Wilks Lambdas prior toextraction were 0.645 (p5 0.000) and 0.932 (p5 0.018) respectively. The resultsdisplayed in Table 5 show that the first function explains most of the variance anddifferentiates businesses at the rapid growth stage of development from those inemergence or early growth. The second function discriminates businesses at theemergent stage from those in growth and adolescence. These results provide partialsupport for Hypothesis 1 that bootstrapping strategies and activities will vary bystage of business development. Emergent and rapid growth businesses use quite differ-ent bootstrapping options. However, there appears to be no significant differencebetween emergent and early growth firms, or early and rapid growth firms.

To test Hypothesis 2—that emergent businesses will concentrate on bootstrappingproduct and business development—we examined the types of bootstrapping optionsthat discriminated the businesses. Table 5 shows that companies yet to achieve firstsales (emergent businesses) are significantly more likely to emphasize bootstrappingthat would reduce labour costs than the other two groups of businesses (rotatedstandardized discriminant coefficient¼ 0.988). An examination of the means asso-ciated with bootstrapping product development reveals that the importance earlygrowth and rapid growth businesses put on bootstrapping product development is

Table 3. Factors linked to bootstrapping type

Bootstrap product development Factor 3: Using customers and suppliers(temp employees) to finance R&D andoperationsBootstrap business development

Factor 1: Owners cash resources that they canquickly access

Bootstrap to minimize need for capital Factor 2: Reducing outflows for inventoryand equipment—reduce operations cost

Factor 5: Using employees to financeoperation (including service providers)

Bootstrap to meet need for capital Factor 4: Loans secured from close ties. Mayput relationship at risk

Factor 6: Owners’ delayed compensation


Table

4.Descriptivestatisticsandcorrelationsforbootstrapfinancing,equityfundingandfirm

age

NMean

S.D

.1

23

45

67

89

10

1Product

development

88

1.25

1.31

12

Businessdevelopment

throughownmoney

88

2.65

1.44

0.02

1

3Minim

izecapitalby

reducingoperationscost

88

1.32

1.66

0.28b

0.12

1

4Minim

izecapitalby

reducinglabourcosts

87

2.20

1.75

0.18

0.20

0.14

1

5Meetcapitalthrough

close

tieloans

88

1.34

1.75

0.13

0.34b

0.24a

0.17

1

6Meetcapitalthrough

delayed

compensation

88

3.13

2.13

0.09

0.10

0.05

0.15

0.02

1

7Number

ofbootstrapping

options

88

5.70

2.86

0.54c

0.46c

0.61c

0.51c

0.52c

0.05

1

8Intensity

ofbootstrapping

88

1.48

0.32

70.11

70.07

70.17

0.06

70.05

0.66c

70.38c

19

Equityreceived

88

0.48

0.50

0.16

70.14

0.48c

0.18

0.12

0.17

70.06

0.30b

110

Firm

age

88

2.86

1.44

0.12

0.08

0.14

70.09

70.07

70.36c

70.45c

70.12

70.03

1

Notes:

ap5

0.05;bp5

0.01;cp5

0.001.


twice that of emergent businesses (mean value¼ 0.72 for emergent; 1.33, earlygrowth; and 1.69, rapid growth). There is almost no difference in the emphasisbusinesses in each development stage give to bootstrapping business development byusing cash resources owners can access quickly (mean value¼ 2.68 for emergentbusinesses; 2.86, early growth; 2.64, rapid growth). The discriminant analyses alsoreveal that owners in rapid growth stage businesses were significantly more likely touse bootstrapping to minimize capital by reducing costs of operations thanbusinesses in either of the two earlier development stages (rotated standardizeddiscriminant coefficient t¼ 0.924).

The findings fail to support Hypothesis 2. What appears to distinguish theemergent stage of development from the later stages is more focus on minimizingcosts of labour rather than using customers and suppliers to finance productdevelopment, or using owner controlled cash resources for business development.We had expected that these bootstrapping options would be more emphasizedduring early growth than the emergent stage of business development. Interestingly,the bootstrapping options that did discriminate the stages of business developmentboth have to do with minimizing costs within the companies rather than focusing onaccessing capital.

To test Hypothesis 3—that early growth businesses will exhibit greater importancegiven to bootstrapping activities than those of emerging business—we examinedboth the number of bootstrapping options used and the level of assigned importanceto the bootstrapping options across both stages of business development.Interestingly, the measures are negatively correlated. As shown in Table 4, thehigher the intensity score, the lower the number of bootstrapping options used.To test the hypothesis we used t-tests to examine the mean number of options andmean importance assigned to bootstrap financing during the early growth andemergent stages of business development. Contrary to our expectations there was nostatistical difference in the number of bootstrap options used (t¼70.537), or inthe importance bootstrapping was assigned during these business developmentstages (t¼ 1.315). Emergent businesses used on average 5.08 options, early growthcompanies, 5.40 options. The mean importance associated with early growth stagebusinesses was 1.47, for emergent businesses it was slightly higher, 1.56. Hypothesis 3was not supported.

Table 5. Results of discriminant analysis: bootstrapping options

Variable Function 1 Function 2

Canonical discriminant functions evaluatedat group means (centroids)

Emergent businesses 70.329 0.602Early stage growth businesses 70.365 70.113Rapid growth businesses 0.912 70.482Rotated standardized discriminant functioncoefficients

Minimize capital by reducing labour cost 0.247 0.988Minimize capital by reducing operations costs 0.924 70.428Correctly classified 57%


We tested Hypothesis 4 that businesses that had received equity funding woulddecrease the importance they assigned to bootstrapping in their financing strategyby comparing both the number of bootstrapping options used and the importancelevel. T-tests reveal that although the importance of bootstrapping fails to dis-tinguish receipt of equity funding (t¼ 0.583), the number of bootstrapping optionsdoes (t¼73.343, p5 0.001). The average number of options used by businesses thathad already received equity funding was 6.71, those yet to receive equity used only4.78 options.

Discussion and Implications

This research set out to better understand how women entrepreneurs utilizebootstrapping to finance their businesses across stages of development. We analysedbootstrapping activities in a sample of 88 women-led high growth, high technologyfirms. In agreement with previous literature arguing that firms will engage in avariety of bootstrapping activities, we found that the types of bootstrapping(meeting need for cash, cost conservation, product development or businessdevelopment) used across various stages of business development differedsignificantly (Van Auken, 2001). A variety of financing activities were carried outto position their companies for growth. Contrary to expectations, however, we foundthat businesses in the emergent stage of development emphasized minimizing capitalby reducing labour costs rather than by focusing on bootstrapping that wouldfacilitate the rapid development of their products and the business. In contrast,businesses in the rapid growth stage were found to be more likely to focus onminimizing capital by reducing operations costs (see Table 6).

Results showed no support for our supposition that firms in early growth stageswould emphasize bootstrap financing more than businesses at emergent or rapidgrowth stages. We had argued that the need to focus on finding cash for puttingsystems into place while simultaneously finishing product/service developmentwould cause firms to rely more extensively on bootstrap financing to position thefirm for future growth.

We did find support for our supposition that rapid growth businesses would besignificantly more likely to have favourably positioned themselves for equityinvestments through financial strategies. However, there was no support for theargument that this positioning would result in their de-emphasizing bootstrapping aspart of their financing strategy. We found the opposite effect. Those with equity wereusing significantly more bootstrapping options, although not assigning them anygreater importance level.

Table 6. Chi-square test for equity received and stage of business development

Source Emerging Early Growth Rapid Growth

No equity 73% 57% 26%Equity received 27% 43% 74%


Our findings complement previous research that examined the types of boot-strapping activities relative to the type of business (Van Auken, 2001; Winborg andLandstrom, 2001). But to our knowledge, this is the first research examining thelinkage between types of activities and stage of development, confirming previousresearch findings about hierarchical financing for growing ventures (Florin andSchulze, 2000; Van Osnabrugge and Robinson, 2000).

This research does reveal that women entrepreneurs leading high technologyventures that seek growth do practise a variety of bootstrapping activities to positiontheir ventures for growth. The nature and importance of bootstrapping activitiesdoes vary by stage, and increases even with the receipt of equity funding. It is likelythat our findings about bootstrapping activities relative to stage of developmentwould equally apply to ventures led by men. Exploring bootstrapping behaviours ona sample of men would be a future extension.

As with all research, our study was limited by the relatively small sample size andconvenience. While we did randomly sample from all applicants to Springboard, thegeographic specialization of the Forums may limit generalizability of our findings tocities for which there were not applicants. On the other hand, because the Forumcities represented the most populous cities for high technology businesses (e.g.Silicon Valley, Boston, Chicago, Washington, DC and New York) we are fairlycomfortable that the findings and sample are indeed representative of aspiring hightech, women-led ventures.

Finally, we anchored this study in Penrose’s (1959) work on the resource buildingprocess and creative financing that occurs when ventures seek growth. In support ofher work, we found that ventures that exhibited more creative financing strategiesand demonstrated more importance for bootstrapping were more likely to havereached rapid growth stage of development. However, we did not examineaspirations and goals of the entrepreneurs as it relates to bootstrapping activities.A more complete picture of bootstrapping behaviour and how a venture might bebetter positioned for rapid growth might be gained by examining these relative toaspirations for the size and scope of the firm.

Acknowledgements

A version of this paper was presented at the Babson Kauffman EntrepreneurshipResearch Conference, University of Strathclyde, Glasgow, Scotland. The authors aregrateful to the Kauffman Center for Entrepreneurial Leadership for their support ofthis research, and to three anonymous reviewers for their helpful suggestions andideas.

Notes

1 In this paper, the term ‘women-owned’ businesses means the business is 51% owned by a woman.

However, in the case of equity investment, the entrepreneur gives up ownership for equity and therefore

the business is ‘women-led’ meaning the woman is executive on the management and/or founding team

(Brush et al., 2003).

2 Springboard is a national non-profit organization accelerating women’s access to the equity markets.

Their programmes educate, showcase and support women entrepreneurs as they seek equity capital and

grow their companies. To date, Springboard has sponsored 14 forums in 7 markets, with 320 presenters.


Springboard companies have raised $3 billion, and more than 4 000 investors, financiers and service

providers participate in the Forums. For additional information on the purpose and nature of these

forums, see www.springboardenterprises.org.

3 Omitted bootstrapping options: (1) Using interest on overdue payment from customers; (2) Selling or

pledging accounts receivables; (3) Retained earnings; (4) Loans from previous employers.

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