Bootstrapping

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DEFINITION of 'Bootstrapping'

1. A procedure used to calculate the zero-coupon yield curve from market figures.

2. A situation in which an entrepreneur starts a company with little capital. An individual is said to be bootstrapping when he or she attempts to found and build a company from personal finances or from the operating revenues of the new company.

BREAKING DOWN 'Bootstrapping'

1. Because the T-bills offered by the government are not available for every time period, the bootstrapping method is used to fill in the missing figures in order to derive the yield curve. The bootstrap method uses interpolation to determine the yields for Treasury zero-coupon securities with various maturities.

2. Compared to using venture capital, bootstrapping can be beneficial because the entrepreneur is able to maintain control over all decisions. On the downside, however, this form of financing may place unnecessary financial risk on the entrepreneur. Furthermore, bootstrapping may not provide enough investment for the company to become successful at a reasonable rate.

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