falling-money-dollars

Bootstrapping

As discussed in the previous entry, an entrepreneur must first decide how to fund their company. The aim of bootstrapping is to finance a company’s growth with the founders’ savings and/or the goodwill and assistance of others. The objective is to skip equity financing altogether to keep full ownership and control of the company. Then, simply do the best to rely on people’s altruism, as well as their faith in a project’s mission or assumptions. Sometimes, the founders may simply rely on their own savings to attempt to turn an idea into a viable business, which may support the company all the way to a further stage before any professional financing sources need to be consulted. This can happen if you have deep pockets and/or if you’re running a lean operation. At this stage, the three Fs (friends, family, and founders) are the most likely source of capital. Bootstrapping can also be achieved when the founders use their personal know-how (e.g. by consulting) or early versions of the product or service (e.g. the minimum viable product) to generate some income, which is re-invested into the company.

Bootstrapping-and-lean-startup-methodology
Credit: Venture Gali

Bootstrapping and lean startup operation are two terms which generally go hand-in-hand, and for which, as seen above, iterative product design is the key to success.

Here are some useful resources to use if you’d like to pursue a bootstrapping approach:

Seed Rounds

Once an idea is conceived, an entrepreneur should acquire support for growth the same way a seed needs care and attention. An entrepreneur should seek funds with the intention of financing product and marketing research, viability studies, and additional strategic processes.

seed-money
Credit: TiE

This round is also used to ensure that the company’s administrative and minimal operational activities can be funded. An example of this would be gaining funding to create a basic mockup of a cubesat or to design a very basic interface through which potential customers could help evaluate a product or service.

In the space sector, while the number of seed deals decreased from 29 in 2015 to 26 in 2016, the average seed deal increased from US$0.5m to US$1.5m. Total seed investment in 2015 was US$14m, while in 2016 it was US$41m (Bryce, 2017).

Depending on the type of company, seed funding can therefore go from a few tens of thousands to millions of US$.

To see the current investment trends by investment type, refer to the following table:

Table-total-investments
Credit: Total investments over time globally (Bryce, 2017)

Besides FFF, the most common sources of seed funding include (but are not limited to):

  1. Grants: Governments and space agencies, and also private companies may provide grants, especially to demonstrate technological feasibility of a product or service, as well as the achievement of a sound business plan. In general no equity is requested from the startup, but typically more bureaucracy is involved in obtaining the grant than for accelerators, incubators, and angel investors.
    NewSpace Business Plan Competition – Global: Seed funding for space related and space-scalable new businesses.
    Small Business Innovation Research (SBIR) program – USA for technology R&D.
    Horizon 2020 SME Instrument – European Union (EU)
    Copernicus Masters – EU: a competition for companies using Copernicus Earth Observation Data.
    European Satellite Navigation Competition – EU: a competition for companies using Galileo data.
    Space Exploration Masters – EU: a competition for startups in the space exploration domain.
  2. Incubators and accelerators: If you are selected for an incubation or acceleration program, typically you will also be provided with a small amount of seed funding, potentially in return for a share of the company’s equity.
    – Satellite Applications Catapult – UK
    Starburst Accelerator – Global
    ESA Business Incubation Centres – ESA Member States
  3. Angel Investors: are the most likely to invest in the early stages of a company’s growth. They will certainly request equity in return for their investment. Some resources include:
    Individual Angels Investors that are open to investing in space
    Space Angels


Posted by Kacper Grzesiak and Paola Belingheri