4 Alternative Solutions for Startups to Raise Funds
- 10.06.2022 11:15 am
If you are a startup with a great idea, chances are you’ll have to raise capital to get it off the ground and into the market. There are various ways to go about raising startup capital, here we’ll cover a few of the less traditional routes to raising.
Crowdfunding allows you to source financing straight from your market as opposed to the traditional way of getting it from investors and VCs. Perhaps the biggest allure of crowdfunding is that it is incredibly empowering and removes bureaucracy.
If your idea or product's success will be driven by consumer interest and demand, then crowdfunding is especially attractive. Plus, you can demonstrate that your target market has already bought into your idea through crowdfunding, and then other more traditional investment options will be more open to you.
One of the most successful crowdfunded startups was Oculus Rift, whose founders included Palmer Lucky, who was just 20 years old. Oculus Rift launched a VR headset back in 2012, looking to get $250,000, but within one month had raised a mind-blowing $2.4 million and was later acquired by Facebook for $2 billion. Success stories like this are proof that a startup can go a long way with crowdfunding.
Traditional funding rounds can be very tiresome. Generally, founders raise enough money to last 12-18 months and then head into the next round to do it all over again. The startup world has been eager for solutions where startups could accept money from investors as and when they needed. The law tech company SeedLegals created a simple solution to the traditional funding round cycle by creating an Instant Investment product that allows startup founders to raise capital before a round and top up on investment at any time. Innovative tech companies like this help businesses to make funding rounds quicker and more efficient. They save valuable time, energy and money by not having to rely on law firms and the drawn-out funding cycle.
A great option, if you prefer to give away a little less equity in your startup, is venture debt. This works like a loan with interest applied. Venture debt differs from a bank loan in that you are not required to have market presence, assets, or a proven cash flow, making it ideal for new companies.
Venture debt is an excellent fit for startups at the Series A and Series B stages, giving you access to capital with less equity dilution. It's a type of financing that is streamlined and less intrusive. One example of a successful startup funded by venture debt is Facebook, which received $100 million back in 2008. Many other household names, including Spotify, Etsy and Uber, have all looked to venture debt to help them progress through various series of financing and growth.
If your startup needs a short-term source of financing, factoring could be a useful alternative option. Factoring is a way to raise capital that can be compared to a line of credit. A factoring company will advance your business up to 90% of all outstanding invoices and accounts.
Factoring is a good source of short-term financing for burgeoning businesses because you don't need to have a credit history. It will relieve some of the apprehension about paying staff and day-to-day expenses-, the last thing you need when you are trying to give your idea all your attention and get your product off the ground. You will, of course, have to pay a fee for factoring, but this is generally a reasonable percentage.
Whatever route works best for you, be sure to back yourself, be prepared with the perfect pitch and have legal documentation. Get a little creative, look outside of the box and research alternative methods of financing your startup.