1. To start a company with personal
finances rather than through
loans or
venture capital. This is obviously a large
risk to the
entrepreneur as he/she has no recourse should the business fail. On the other hand, it allows the entrepreneur to maintain control of the business and has the potential to be very successful. It is famously said that Ross Perot established Electronic Data Systems with $1,000 in personal
savings; he maintained complete control of the company until its
IPO six years later. This is an example of bootstrapping. See also:
Seed money.
2. To calculate the
yield curve on a
zero-coupon Treasury bill. Because the
U.S. Treasury does not
issue new T-bills constantly, bootstrapping is used to create a yield curve by filling in the missing
yields on the T-bills.