For
some entrepreneurial ventures, startup capital needs are minimal. If an
entrepreneur has a low risk profile (and an idea that doesn’t require a
lot of startup capital), this could be the way to go.
For other
ventures, startup capital requirements are more involved. While there
are entrepreneurs who are able to finance their startups themselves -
either from savings and investments or by continuing to work at least
part time - most of us need to investigate other sources of financing.
In addition to all the standard options that entrepreneurs have relied
on for decades - loans, credit card financing, money from family and
friends - here are some other ways that you can secure the funds you
need:
Accelerators and Incubators
One
really good option is to apply to be part of an accelerator, incubator,
or other program that helps launch entrepreneurial ventures. The
accelerator and incubator programs are typically 12 weeks long and they
are intended for entrepreneurs that are at the beginning stage of their
venture.
In addition to being a wonderful networking opportunity, most
programs provide funding to the founders (in exchange for a percentage
of the equity), as well as significant mentoring.
There are programs
that are specifically for women entrepreneurs and many others that are
for both men and women.
Angel Capital and Venture Capital
Angel
investors are people who give founders initial startup capital to launch
their business and in exchange, receive a percentage of the equity.
While for some founders, the angels are their family and friends, more
often the angel investors are successful individuals not previously
known to the founders. Angel investing is high risk because of the high
rate of failure for new ventures. Angel investors also assume the risk
of their investment being diluted by future rounds of financing at
higher valuations of the company. For these reasons, they will be
looking for the potential of a high rate of return when they decide
where to allocate their funds and whether to invest in a specific
venture. Angel investors can function independently or they can be part
of a group or network.
Venture
capitalists invest during subsequent rounds of financing for ventures
that make it past the seed stage.
Like angel investors, venture
capitalists also will be looking for an appropriate equity position
which will give them a high rate of return to compensate for their risk
and the high failure rate of new ventures. Venture capital funds can
specialize in a certain industries or sectors, or certain types of
companies or business models. And sometimes certain startups or founders
catch their eye and they believe that it could be a winner. If you
follow some of the largest industry conferences (South by Southwest,
which was just held in March, for example), you’ll see that certain
startups were declared the unofficial winners in terms of the investor
interest, user interest, and publicity that they generated during the
conference. This usually sets them up for continued success and traction
once the conference is over.
Business Plan Competitons
Business plan competitions
are another source of startup funding. There are competitions that are
sponsored by companies and organizations and many that are sponsored by
universities for their students or alumni. Sometimes only one of the
founders needs to be affiliated with the university. so check the rules
of the ones that interest you. In addition to checking with any
university that you have attended, there are also online directories
where you can select competitions based on your industry, location,
education, or membership in a group (such as women or ethnic minority).
Foundations
Applying to foundations
for grant funding is yet another option. Each foundation has its own
criteria about who or what they will fund, as well as a timetable of
when they consider applications.
You may initially find completing the
applications to be complicated, so if you have a colleague who has been
funding this way, you may want to ask them to review your application
before you submit it. The application period is typically only once a
year so here’s a case where two pairs of eyes are better than one.
Crowdfunding and Microfinance
Two additional options that are getting more attention are crowdfunding and microfinance. Let’s start with crowdfunding
which has gotten a lot of attention in the media lately. This option
allows small businesses to raise money from individual investors who are
investing a certain amount of their own funds. Another option, microfinance,
provides loans to people who want to launch their venture but may not
have access to traditional bank loans. This option has also been around
for a while but recently has experienced some challenges regarding over
indebtedness and lack of repayment.
Out of the Box Options to Check
As
a closing thought, while you are pursuing the options described here,
there are a few “out of the box” places you may want to check for some
additional funds. Each of these sites will help you check if there is
money that is owed to you or property that is yours and unclaimed:
- Are You Owed Life Insurance?
(The Wall Street Journal; 12/31/11) talks about the amount of money
that is unclaimed by policyholders for life insurance policies and the
efforts being made by insurance companies to locate the policyholders.
- General Liability Insurance - These details may not seem important early on in the start up process, but could help save the company thousands of dollars down the road.
- Missing Money and Unclaimed.org assist in all participating states to find missing, lost, and unclaimed property, money, and assets.
- Treasury Hunt
tells you about savings bonds that are no longer earning interest. If
you or your family member has these bonds, they can be cashed or
reinvested.
Nillie
Goldman is the Founder and Publisher of WebToTheRescue.com, a completely free and unbiased
Entrepreneurship website designed to help founders build their companies
quicker, easier, and with more support, thereby increasing their chances of
success. @webtotherescue on Twitter.
For a detailed list of the programs go to http://WebToTheRescue.com and go to the sections on “Accelerators and Incubator Programs” and “Women Entrepreneurs”
27 Jun 2013 - 08:00 - 28 Jun 2013 - 17:00London, UK
Thoughts on funding issues
As a business incubator in Austria/ Europe, who was unsatisfied with the current situation, we developed www.INISMO.com. Sources like platforms to post ones business idea and contact investors didn't seem to be star of the art anymore.
We wanted to help entrepreneurs (as well as investors) to solve problems as mentioned here and focus on their core activities again, so to get their business off the ground (and not 'how to get an investor on board').
That's why INISMO combines a collaboration tool for entrepreneurs to focus their business concept and present it in an appropriate way to professional investors with web-based investment tools for them to simplify their funding process with deal flow management and online deal room to negotiate deals.
Good Article
Great read! I have a startup and have been doing tons of pitch competitions and trying to raise capital. We raised a friends and family round and now are looking for a seed round.