Bootstrapping Startup: Raise Debt From Your Employees
Published in 2010, this chronicle by @eladgil details the mechanics of building a profitable, self-funded business without venture backing.
Core Principles for Independent Builders:
Charging customers from day one acts as the ultimate filter for building software that solves genuine, high-urgency problems.
Keeping fixed overhead low and leveraging lean infrastructure allows founders to stay alive until market tailwinds kick in.
Small, repetitive improvements in customer retention and conversion rates yield massive returns over multi-year horizons.
Community Debate Themes:
The community focused on B2B customer acquisition channels, cold email vs SEO distribution, and balancing full-time employment with side-project development.
CATEGORY Bootstrapping & MRR →
HISTORICAL ERA Web 2.0 Genesis (2007–2013)
COMMUNITY SCORE ★ 4 points
TOTAL DISCUSSIONS 2 comments
While I agree that not paying employees (consultants, etc. ) with money extends the runway while running on the founders captial I have a couple problems with this tactic.
1. Like relying on an unpaid interns you limit your potential employee pool to the group of people who can either afford to work for free (no cash right now), have no better option than to work for free, or who have to work a second job to pay their bills.
2. Most of those people won't understand the probabilities of success and payout amounts to founders, employees, and investors under the variety of plausible financing and exit scenarios.
3. You didn't mention personal guarantees on the company's debts to the employees. How do you collateralize your obligations to the people? Are the employees retained under this plan sophisticated enough to understand the credit risk they're taking? Are there covenants or debt coverage ratios you're committed to maintain?
4. What happens when you fire someone (or they quit) before the fundraising?
Why not just make a loan to the company yourself and give them cash? 2nd mortgage or from friends and family... Seems cleaner.