4 Alternative Ways to Finance Your Startup
Trying to get a startup off the ground without venture capital sounds like an impossible task. But despite the rumors, bootstrapping your startup and finding alternative funding is not only possible but could be a huge benefit. Here are some non-venture capital funding ideas that have worked well for many startups.
Why Not Rely on Venture Capital?
Before you read the following tips, you might be wondering: why not just pursue venture capital funding for your startup? While it’s a popular choice for many good reasons, there are just as many reasons why it may not be a good fit for your business. Firstly, your business may simply not require as much funding as you think it does. Startup costs can be high, but re-evaluating your needs might leave you with a different conclusion.
Secondly, venture capital will require you to give up equity in your business. This may not seem like a big deal when you’re just starting out, but eventually, you’ll realize just how much power you’ve given up, especially if your business becomes successful. Lastly, venture capital often requires startup CEOs to alter or even entirely rewrite their initial vision. If you believe in your business idea and don’t want to compromise, venture capital isn’t the way to go.
1. Harness Your Fans
If you’ve got a great idea that has attracted a lot of positive reactions and support, crowdfunding might be the way to go for your startup costs. Rather than exchanging equity for financial support, your backers might pitch in just to see their name on a bench someday, or in return for a free product. This approach requires a strong supporter base in order to succeed, and can be time-consuming as you plan new ways to garner and maintain enthusiasm. However, crowdfunding has the added benefit of building brand recognition and loyalty while raising funds. By the time your business has gotten going, you’ll already have a large chunk of its branding out of the way.
2. Strategic Debt
“Debt” is a dirty word, but in the world of startups, it has come to earn a different reputation. If you have confidence that your business will take off and be lucrative, taking out a loan to get starting capital can be a smart way to go. You’ll have to pay attention to interest rates to ensure that you won’t find yourself in a deep financial hole, but with careful planning, a loan can be both safe and beneficial. Venture debt capital is also an interesting option for those willing to pay later. It’s a great option for those without the cash flow required for a traditional bank loan and can help your business expand its capacity quickly from the beginning.
3. Angel Investors
For startups willing to sacrifice equity in return for funding, looking for angel investors might be the best option. You’ll be attracting investors who are interested or directly involved in your industry. It’s possible that going this route, much like venture capital, will require you to make some concessions regarding how you run your business, as well as hitting certain milestones to ensure continued investments. But angel investors are much more hands-off and will be more likely to sit back and watch how your business unfolds after their initial seed investment.
4. Business Grants
While applying for grants can be a time-consuming and mind-numbing task, there are tons of grants available for businesses (particularly if they’re minority-owned or promise to bring economic growth to an area) that go unused because nobody applies for them. If you have someone on your team with time to spare, setting them to the task of finding and applying for grants could be a good use of their time. Alternatively, you can hire a professional grant writer who can find the best possible grants and ensure your applications are complete and effective.
There are many possible avenues for funding your startup, depending on your unique needs. Don’t hesitate to explore your options, rather than defaulting to venture capital from the beginning.
