It's cliche because it's true: capital is the lifeblood of your business. There's just no way around it. If you don't have the capital to fund your operations, you can't execute your vision or scale your startup.
Of course you can bootstrap, but that only works for certain types of businesses. Startups require talent, equipment and other costs that sweat equity can't always solve. The playbook for running a successful startup suggests that founders raise money from venture capital firms (VCs). Yet there are significant trade-offs with taking venture capital.
Luckily for founders, there are other paths to fundraising outside of institutional capital. Each has their own unique value proposition, and tradeoffs. These alternatives can be the difference between success and bankruptcy. Here are three non-VC ways to fund your business that you should not ignore.
In 2013, I created and launched a crowdfunding campaign that raised almost $600,000 in 30 days. Not only did we raise the money, we also gained brand exposure and received valuable feedback from consumers.
If your idea, or product, fits well with this model, it's a great avenue to explore. The process involves a great deal of work, yet I don't know of any other option that provides cash flow, consumer feedback, press and customers.
It's worth noting that crowdfunding is not fundraising in the traditional sense. It's more accurate to describe crowdfunding as pre-selling your product. You are obligated to use the funds to create and deliver what you've promised. Regardless, it's fresh capital for you to make something happen.
2. Equity crowdfunding
It goes without saying, but the key difference between crowdfunding and equity crowdfunding is the fact that a backer is obtaining equity in your business.
The process is a true combination of crowdfunding and equity fundraising. Essentially, you create a campaign page, define the terms of your fundraise, provide the detailed information necessary to be SEC compliant (and to fulfill obligations to prospective investors) and then launch the campaign.
The rise of blockchain and cryptocurrencies has created a new method for equity crowdfunding, called the security token offering (STO). StartEngine, an equity crowdfunding platform, provides founders with an option to use their turn-key solution to launch and complete an SEC-compliant STO, in addition to normal equity crowdfunding campaigns. The STO provides investors with additional options that normal equity investors don't receive.
3. Debt and blockchain
Raising capital through a debt vehicle is not a common path for many startups. The reason is because startups don't usually have good cash flow and are less able to pay the interest. For this reason, rates can be very high.
However, there are times when a loan can provide the shorrt-term liquidity you need to order inventory, initiate a marketing campaign or launch a cloud hosting service for your software. In these circumstances, it's very nice avoid diluting yourself for a short-term need.
Crowdfunding disrupted the path founders needed to take in order to access traditional capital. Now, blockchain technologies and cryptocurrencies are presenting disruptive alternatives to traditional credit offerings.
Instead of using traditional forms of collateral, founders (and startups) can use their cryptocurrencies as collateral. Equilibrium (EOSDT) is a platform that allows founders to generate a stablecoin (a tokenized asset designed to have the attributes of cryptocurrency but with the stability of legacy assets). Essentially, this allows the founder (or startup) to lower the market risk from the price fluctuations that are notable with cryptocurrencies while also accessing needed capital.
4. Angel Investors
Although angel investors are similar to VCs, their independence allows them to say "yes" to a deal without the same constraints, dilution and demands as traditional VCs. Therefore, they are good paths to revenue, especially in the early stages of your startup.
The process for obtaining angel funding is as diverse as the angels themselves. Syndicate websites, like AngelList, aggregate angel investors and allow entrepreneurs to raise money from those angels. Another resource for angel-like investment are niche incubators. The last option is hustling. It's on you to tap your network, get in front of angels, make the pitch and close the deal.
Success with startups requires that founders do everything possible to raise the money they need. You must investigate every new option instead of relying on the same traditional sources. If we didn't embrace crowdfunding when it was new, I wouldn't be where I am today. If you're raising money, learn more about each one of these options. One can only guess where you might be after you give one of these options a try.