Investment for Start-ups, Explained
Sources of Funding Besides Venture Capital
You have thought of a million dollar idea for your startup; now you need to find a way to fund your venture! The most popular way to raise money is through venture capitalists. Choosing the right sources of funding is a very strategic move for your startup, and looking into alternative sources besides VC funding could get you better results in the long run. We listed a few alternative sources of funding for your startup.
Alternative Sources of Funding
One of the best ways to fund your startup is out of your own savings. Self-funding your business from your savings will cut a lot of unnecessary costs while starting up. The time you save going to potential investors can be used in building your business. Since there is no outside funding, you will have equity and full control of your startup. Some examples of successful bootstrapped companies are MailChimp, Behance, and Nasty Gal.
Friends and Family
Tap into your network. You never know who might believe in your idea enough to bankroll you. Friends, family, high net worth individuals, and people from the industry may all be viable sources of capital. A few successful examples are Shopify, GitHub, and Cards Against Humanity.
Angels are wealthy individuals who invest amounts ranging $25,000 to $50,000 in startups and small businesses, usually in the second round of funding; after you’ve been funded by friends or family or from your savings. For startups, this is much easier and logical than going to a VC, as VCs prefer making huge investments and require 10 to 30 times returns on the amount they invest. Some of the successful companies that got their start with angel investors are Starbucks, Amazon, and Apple.
Another way to fund your business is to launch a Kickstarter campaign. A lot of entrepreneurs have raised much more than the initial amount to set out to raise. Your potential customers have a chance to pre-order your product before it is even designed. Another popular platform for crowdfunding is Indiegogo. Crowdfunding works well for physical products that are unique and solve specific problems for customers. But keep in mind that you will have to market your product if you want to hit your goal. Successful Kickstarter campaigns include the 3Doodler, the Pebble watch, and the Formlabs 3D printer.
An incubator is basically your go-to solution for office space and support infrastructure. Prior to launching, your startup will have various tasks such as registering your company, hiring, marketing, branding, infrastructure and equipment needs. An incubator can offer you these resources to complete these tasks so that you can focus on building your startup. They also offer industry connections and consulting. Incubators provide these services in exchange for equity in your startup. Examples are Dropbox, Airbnb, and Stripe.
Commit to a Huge Customer
Certain customers will be willing to cover your production costs in order to buy your products before anyone else can. In return, you can give them control of your process and dedicated support. This is great for business development; your first few huge customers can help you sustain your startup.
Bank Loans and Lines of Credit
If the amount of funding you need is small, try applying for a business loan. Banks often require you to show collateral such as your house and/or will require a personal guarantee.
Government And Private Grants
If your startup is in the educational, social or R&D in the technology sector, government or private grants will suit you very well. The major plus point is that the grants don’t dilute equity.
And there you have it, a few ways you can get one step closer to making that dream project a reality.
Understanding that there are various sources of funding besides venture capital is very important, as all businesses might not be the right fit for VC funding and sometimes might not even need it.
This article was contributed by Ruchika Shankar.