As many of this year's Inc. 500 company founders can attest, bootstrapping a business often has a happy ending, but it can be hell on your personal finances along the way. I talked to Dave Lerner, serial entrepreneur, angel investor, B-school professor, and author, about the challenges that self-funded entrepreneurs should prepare for at every stage of the bootstrapping journey.

To what degree should entrepreneurs brace for a major impact on their personal finances if they decide to bootstrap?

I would have answered this question differently just five years ago! But in today's environment, where the costs of building prototypes and minimum viable products have plummeted to the point at which literally everyone has inexpensive tools, resources, and information at his or her disposal, the answer is a lot easier.

We're in a golden age of entrepreneurship, in which the earliest phases of bootstrapping have never been so inexpensive. A fledgling entrepreneur who is committed and passionate has no appreciable barriers to testing her hypothesis, interviewing potential customers, and building a minimum viable product.

The second phase is still tricky: If you've gotten great feedback, have shaped your product in response, and have customers willing to pay, you then face the age-old questions, such as, Should I quit my job? How do I build a team? How will I fund the operation? It's really helpful to familiarize yourself with the principles of the lean startup movement.

Has your view of bootstrapping changed over the course of founding or co-founding six companies?

My first company, which scaled to 60-plus employees and locations across multiple states, was completely bootstrapped. For long periods of time, I had no salary--my compensation was bare-bones until we sold seven years later. For better or worse, that has shaped my sense of what types of founders I like to back as an investor. Now we're in an environment where angel and venture capital is much more accessible, and I still relate to entrepreneurs who are willing to sacrifice to build value early on, before raising outside capital.

I am a proponent of raising capital when you're ready for it. But I encounter a lot of first-time entrepreneurs who want to raise capital too early and aren't ready to hustle to build value before going out for funding. That's a big red flag for me as an investor.

But those hardworking founders also have bills to pay. At what point should a founder start taking a salary?

This is an incredibly sensitive topic, and I don't mean to sound harsh, but the reality is that entrepreneurs shouldn't think about salary in the early stages. I agree with Steve Blank that "a startup is a temporary organization designed to search for a repeatable and scalable business model." Salary can come only from revenue or funding of some kind, and if you have neither, then there is no basis for it.

What about that other pivotal moment--how does a bootstrapper know when the time is right to take on investors?

The first thing I want to stress is that there are no rules. That said, these days, the standard behavior of early-stage investors is not complicated. Given how easy and inexpensive it is now to prototype sites and gadgets, investors want to see, at the very least, a product in the market. Second, they want to see a very strong team that has special insights (or advantages) in terms of the market in which it is operating.

What personal traits do you look for before you decide to invest? Does an entrepreneur's approach to bootstrapping say anything about her?

I want to see a team that has completely bought into the venture, whose members complement one another extremely effectively, and that has a foxhole mentality as it approaches what will invariably be a very tough and long haul.

Though it's preferable that the team have domain expertise and unique insight into a market, I realize that we live in a world in which people can create new markets, and sometimes these folks are effective precisely because they have no biases derived from the older model they're seeking to disrupt.

What role do you think incubator programs can and should play in raising capital?  

After selling my first company I got into angel investing as well as company incubation here in New York City. That first company was in the healthcare space, where we disrupted an entire disease protocol over the course of seven years, but now I had a huge appetite for the internet and different technologies of all types. This was, of course, before the New York tech ecosystem had taken off as it has, but there were a lot of early pioneers out there trying to figure things out. Unlike today there were no blogs and very little information available about what approaches and structures worked.

As a result you had to figure out a lot for yourself and we did a tremendous amount of experimentation with the incubator and various technologies out of our Greenwich Village digs. It was an incredible time and tons of fun for us.  This experience helped me a lot when I subsequently ran the Venture Lab at Columbia University for seven years and spun out 50+ technology companies, many of which were venture-backed.

More recently, things have come full circle in my role as Director of Entrepreneurship @ Columbia University. We just launched the Columbia Startup Lab down in Soho, literally a few blocks from where I first started. We are actively incubating 30+ companies that harness the talent and breadth of the many grad schools at Columbia. It's another experiment, but this time we've brought even more diverse talent to bear on the process.

We're leveraging the expertise of the alumni community, the raw talent of the students and, where appropriate, the input of the faculty. In some ways, I look at the whole University as an incubator--we are just experimenting with the best ways to harness it.

I think the elite accelerators and incubators are an awesome player in the tech ecosystem. The best ones harness incredible communities of mentors, entrepreneurs, investors, practitioners, corporates and potential acquirers and leverage these networks to the max.  But it’s all about quality-;there are dozens and dozens of these incubator/accelerators out there, but only a handful are top notch. Quality is everything.

In addition to being an entrepreneur and investor, you’ve also interviewed numerous other founders as the host of Venture Studio. Any teachable moments stick in your memory?

In all honesty, my interview with you stood out and I use it as an example when I speak to my students at Columbia Business School! I remember you telling me that while you were still at Harvard Business School you had the good fortune of having been invited as a junior member to the Belizean Grove--a women’s group composed of very prominent and high-achieving leaders.

You mentioned that you built some excellent relationships there and that some of the members took you under their wing as mentors and eventually made introductions to venture capital funds that eventually backed you. To me the key was that you extended yourself, had a great attitude and approach, a big vision, and were open to becoming part of an excellent mentoring community. Through these efforts you were able to forge real friendships. Once the introductions were made you obviously “had the goods”- but the key was getting those warm intro’s and character referrals, which venture capitalists want to have before they are willing to meet with entrepreneurs they don’t know.