Can you imagine a world where startup Venture capital doesn’t exist anymore?
It is easier to think if you aren’t in the Silicon Valley startup bubble, because for you that option may never have existed. Well, to be honest from what I have observed, it can be a challenge to pitch and find the right investors or to find investors at all.
Do you know these are the top reasons given by those that either did not apply or approved funding but declined it included:
- Cost/interest rate too high
- Unfavorable repayment terms
- Amount offered was too small
- Collateral requirements
- Debt-averse
- Found enough funding from other sources
That is why we’ve seen a large migration over the past 20 years into Silicon Valley where entrepreneurs hope to fuel their dreams. This is why I’ve decided to put this comprehensive list together wherein you will find 20 new ways to fund your business.
Startup founders can use this information as a building block to start and grow their businesses without putting all their eggs in one basket.
So, Let’s get started.
1. Apply For Grants
Free money. Can you think about any other better way to fund your startup? But obtaining a grant to fund your young business isn’t that easy.
That is why you don’t hear about it happening too often. However, grant programs do exist. You can opt for a grant from several sources, including:
- Amber Grant for Women
These grant programs are tailored to specific types of businesses, as well as certain segments of the population.
Grant programs offer amounts as small as a couple of hundred dollars to recipients, so don’t expect to ride a wave of free money to business success. So, you can just scroll down to the above programs and see those that you match up well.
2. Bootstrapping
Megan Cox, founder & CEO, Wink Natural Cosmetics says “Scrape together all your loose cash, savings bonds, etc. and figure out the cheapest way to make a minimum viable business or product”.
According to her, she was able to create Wink, including the first product run, for under $2,000. Small business credit cards can have limits of even more than $50,000.
Considering that this is funding you might use without having your business plans scrutinized by some grand poobah. Also, the convenience of credit cards is balanced out by high interest rates.
So, if you don’t want to let your credit card debt linger with the interest piling up, then plan to pay it back as soon as possible, within the no-interest grace period.
3. Microloans
Microloans are granted by institutions to individuals who wouldn’t normally qualify for a standard loan. Well, microloans are usually no more than $50,000, with the average being around $13,000.
Because microloans are for small amounts of cash, they are considered less risky than other sorts of business financing. You can obtain a microloan from Accion, Kiva, or microlenders like Opportunity Fund.
4. Pitch Competitions
According to Nikki Hynek, CEO of Dollup Beauty “With the Shark Tank phenomenon sweeping the nation, more and more local city and state organizations are hosting events that allow businesses to pitch to potential investors and receive monetary prizes”.
Dollup Beauty won $12,000 in angel investments at an Invest In She event in Cedar Rapids. This way they got connected with investors who were willing to help us grow our business.
If you miss the deadline this year, do bookmark Hatch Pitch, Disrupt, and, PITCH for a shot next year.
5. Peer to Peer Lending
It is not easy to explain your business concept to a banker, but explaining it to your peers is a different concept.
A lot of startups choose to borrow money from their peers, but rather than asking your college buddy to cough up a few grand, try Prosper, LendingClub, Upstart, Peerform, and Funding Circle instead.
The rate of interest is also higher, but you would be dealing directly with the lender, therefore the criteria aren’t as stringent as traditional brick-and-mortar banks.
6. Crowdfunding
I always find crowdfunding as one of the easiest ways to find funds for your business. It is a practice of raising funds from different forums or people. It is alternative finance and a kind of crowdsourcing.
Luckily, there are many crowdfunding options available for you on the internet. The success of your crowdfunding campaign depends more on how you pitch your business idea to the investors.
I have seen most startups choose this method of funding because of the flexibility of options. Venture capitals are generally strict with their investments.
They will demand more equity in your business than you’ll ever think to offer through a crowdfunding model. You can visit Indiegogo, Kickstarter, Causes, and Patreon and decide which is right for you.
7. Fintech Funding
Financial technology (fintech) lenders are institutions that provide loans or lines of credit as an alternative to traditional bank or government loans.
So, to find the best option you should check out a lender’s track record, services, application requirements, customer support, as well as loan terms.
Platforms such as Kabbage, OnDeck, PayPal, and Lendio are some of the funding options that are becoming available, and typically provide similar loan amounts and lending terms.
8. Friends and Family
Believe me, this is a tried and true method—the people in your life often believe in you and will put their money where their mouth is.
Always remember to go through all the proper legal channels and have the paperwork professionally prepared. Focus on those that are closest to you and have deep pockets.
9. Run pre-Sale
Do you know Bittylab did a little crowdfunding on her website, hosting a presale — and advertising it with modest PR funds.
Priska Diaz, Founder & CEO, Bittylab, recalls that “After creating the Bare air-free baby bottle concept and showing it around, many suggested I try crowdfunding to fund my venture,”.
This way she got the traffic with 100 percent of the funding. At the end of the presale, she had 10,000 newsletter registrants, 8,000 unique visitors per month, viral PR, and raised $50,000, which paid for inventory.
10. Purchase Order Financing
Several factors affect the cash flows of any business. These factors may include supply and demand and seasonality.
For instance, sometimes a company is unable to complete the orders due to fewer funds to buy inventory and materials to make the products.
In situations like these, purchase order financing is often the panacea to the issues. Purchase order financing collects back money when products are sold.
If your business deals in manufactured goods, it stands an opportunity to form 20 percent more on its sales by opting for purchase order financing.
11. Vendor Financing
If your bill payment record is contingent on your product selling record you will prefer to take the benefits by negotiating longer payment terms with the vendors. Vendors require payments on invoices within thirty days before imposing penalties and late fees.
This is important if your business has a longer sales cycle than thirty days. That means if the sales cycle takes 40-45 days from purchasing to selling goods, then you won’t be able to make invoices payment within a month.
In that case, you would like negotiations to avail of vendor financing to benefit your sales cycle.
12. Self Funding
Self-funding is the easiest first option for many founders to a particular point.
Doing small things for your company like paying for marketing assets, hiring first employees, and other early-stage activities can make sense, but also be aware of what your investment cap is.
You should know your limits and set them beforehand.
Treat yourself like an investor and stay faithful to your hypothesis that you are testing with the business. If it isn’t working, be flexible to undertake new things.
13. Startup Perks
Well, Google Cloud, AWS Startups, Microsoft + Startups, SendGrid, and other service companies want to attract startups at an early age, and offer competitive packages with free credit.
Take advantage of the offers and you won’t be spending an arm and a leg on running your business from the outset.
14. Accelerators and Incubators
Accelerator programs have a defined time frame during which individual companies spend from a couple of weeks to months working with a group of mentors to build out their business and avoid problems throughout the way.
Y Combinator, Techstars, and therefore the Brandery are some of the most well-known accelerators.
Startup incubators begin with companies (or even single entrepreneurs) that will be earlier in the process and that they don’t operate a set schedule. A good example of an incubator is Idealab.
15. Venture Capital
On the first level, you might be looking for VCs to fund your business. Let me tell you it is not an easy process to fundraise bearing all the odds that are against you.
If you ask 100 investors, 5 may say yes. If you have a strong business plan and a roadmap for long-term growth, you may want to pursue venture capital for funding.
VCs make money through their investments and consider having some control or authority within the business.
You can go through platforms such as FundersClub, Alcor Fund, and, YCombinator which will help you to analyze your business and connect with venture capitalists.
16. Find Angel Investors
An angel investor is a group or an individual that has spare cash available and wants to invest capital for a start-up or its expansion.
From what I have analyzed is that this type of funding is far less risky than a loan or venture capital as you don’t have to repay. Instead, an angel is looking for some sort of share in your business and expects any sort of return in the business in terms of profit.
If you want to seek investment from an angel investor Gust, CircleUp, and Angel Capital Association are some great options.
17. Small Business Loan
With banks reluctant to take the chances with their money in the wake of the credit crisis, loans guaranteed by the U.S. Small Business Administration have become popular.
Whether it is purchasing new equipment or money to recover from a natural disaster, SBA-backed loans have low interest rates and favorable terms.
SBA-backed loans are open to any small business. Before applying for an SBA loan, check that you meet the factors to be considered for a small business.
18. Pledge Percentage of Future Earnings
You may be able to exchange a percentage of your future earnings for cash right away.
For example, you’ll surrender 5 percent of your future lifetime earnings for $500,000. It is a risky move, and there are some legal gray spots, but it is a unique proposition.
19. Convertible Debt
The use of the Y Combinator SAFE convertible note is common in Silicon Valley.
The main benefits are that this investment tool makes it easy for founders to boost money quickly and simply with options for future equity that convert at subsequent funding rounds.
The expectation is based on a VC’s unicorn goal and if you don’t make it there it is assumed investors don’t expect to be paid back in the stipulated period.
That mentality can vary from ecosystem to ecosystem and you should be cautious and communicate clearly with your investors.
This will help you to make sure you are on the same page when talking about payback periods, interest rates, and your vision to grow the company.
20. Retirement Accounts
Another option is to borrow money against your assets. You can borrow money from your 401(k) or your IRA bank account.
Even though you may be putting your retirement savings in jeopardy, check with your financial advisor –typically you can withdraw this money without getting penalized.
And you do not need to worry about paying off any debt.
Wrapping Up
The process for startup financing isn’t a game for the meek. So, in the end, it is your business. You choose how to run it. You choose how to fund it.
Think about your business goals and the lifestyle you want to live in. You’ve to expect rejection when seeking business capital.
That is why it helps and keeps you aware of many paths towards acquiring capital. The odds are decent and you’ll find at least one path that will be navigable for you and your startup.
Hence, these funding strategies capitalize on an opportunity, improves your investments, and allows you to self-fund your initiatives.
Claire Mark is an investment and strategic planning consultant at Alcor, a global investment bank. She’s best known for her insightful blogs on business growth, startups, small businesses, and investments. Claire also has a good network in the Finance industry, especially the investors’ community. Apart from her work, she loves to bake and go out for gadget-free nature walks.
