Is bootstrapping a suitable strategy for innovation?

In this paper I investigate whether bootstrapping is a suitable funding strategy for innovation in the software industry. I argue that bootstrapping empowers innovation through creative search paths and flexibility and that this is accelerated by the founding team’s social and human capital. I performed a cross-sectional analysis of 193 Israeli startups on the innovative performance of bootstrapped firms compared to their counterparts and found surprising results. Firstly I found that the innovative performance of software startups has no direct relationship with their funding strategy but rather with the human capital they acquire through the chosen strategy. Secondly I found no evidence of the founding team’s moderating effect although the results reveal that it facilitates both the funding and innovation processes of startups. The findings add a fresh perspective on entrepreneurial funding choices and emphasize the importance of human and social capital for firm innovation growth and survival.