Venture Capitalists have a sweet spot, and I've got firsthand experience with what I call the "VC paradox." If your business is too small or too young, they'll want to see more validation -- but, if you have that validation, they'll wonder why you aren't bootstrapping it a little further.
What if you find yourself in a position where you need money to get a business off the ground, but you don't think you'll match the VC criteria? Lucky for you, America loves an entrepreneur, and I would say that the U.S. is probably the easiest place in the world to find funding for a new enterprise. Here are some alternatives to VCs:
1. Lean on Friends and Family
One of the first avenues for early seed stage cash is reaching out to your friends and family. This could be as unofficial as a $2,000 Venmo transaction or as official as convertible notes but, either way, you should only go down this route if your friends and family understand the risk -- otherwise, it could make for an awkward Thanksgiving dinner!
2. Look to Angel Investors
Angel Investors are another great source of seed funding -- the only trick is finding them. They generally have a particular field of interest and a range of funding that they usually invest. The best approach is finding connections through your network but, otherwise, there are great sites like AngelList that can help you match your idea with money.
3. Crowdfund à la Kickstarter and Indiegogo
Crowdfunding flips the traditional production and sales process on its head with a "sell first, build later" model. This solves two issues: 1) finding the money to build your product, and 2) ensuring you've got people who will buy it once it's built. Platforms like Kickstarter and Indiegogo have been a godsend to budding entrepreneurs. However, as these platforms have grown in popularity, they've become much more competitive. Even though you're delaying the cost to build until you have the proof of the market, you need significant investment in marketing and community-building via internal skills or money investment.
4. Target Small Investors With Equity Crowdfunding
This brand-new approach allows you to pitch your idea to the public but, unlike with traditional crowdfunding, you offer shares of equity instead of a product. Regulation Crowdfunding (known as Title III) could be considered an "extended family and friends" round. It creates a platform that makes it easy for people to invest a small sum, and allows issuers to raise up to $1,000,000!
This only launched in May of 2016, so it's still very new. However, it's certainly something to consider if you have a network that you can tap into, or a customer base to whom you can communicate this offering.
5. Get a Head Start With an Accelerator
Accelerators are intensive programs that help start-ups get off the ground. They're usually stiffly competitive, and the application process can take some time but selection into a program allows you to benefit from a small amount of cash, mentoring, and also assistance in the next stage of raising money. Y Combinator is one of the big names in this space, but they're popping up all over now -- and some focus on local businesses or specific industries.
6. Stay Lean With Ecommerce
Avoid capital-intensive business models like retail by launching your product on an online marketplace like Etsy, or setting up an online shop utilizing a SaaS partner like Shopify. With these, you can get a business up and running with little upfront cost and, most importantly, generating revenue sooner. Your business can grow in this way or, when you have enough proof of demand, it will become easier to secure a bank loan or even self-fund your next step.
7. Apply for a Small Business Loan
What if you want to head in the retail direction like food service, a salon or convenience store? Rather than starting from scratch, there are always lots of good purchasing opportunities.
Meet with business brokers about purchasing a successful business from someone who is retiring or relocating in your field of interest. Most of these businesses sell for a multiple of profits and; in most cases, there are dozens for sale at around 3 times their annual profit.
The US government wants America to continue to be a leader in small business and they will help you buy that café by guaranteeing an SBA loan. The SBA will guarantee up to 85% of loans up to $150,000 and 75% on higher loans under the basic 7a loan program (more under other programs). The criteria is having a business defined as small and operating for profit, showing evidence that you need the loan, proving that you have a decent credit history, and are willing to put down at least 15-25%.
Now that your fundraising concerns are alleviated, all you've got to do is find that million-dollar idea! Remember, you are in the USA and we have no shortage of American Ingenuity. So be part of the American Dream: Own your own business, grab yourself a slice of that apple pie, and drive off into the sunset!