Raising Funds Without Venture Capital or Bank Loans

Funds, like fertilizers to plants, are essential to facilitate growth in businesses. However, some founders may prefer to raise the needed funds without venture capital or bank loans.

The good news is; in recent times, startups are embellished with more fundraising options than ever in different flavours.

Founders of startups are exploring these options to raise capital to propel their growing companies. The traditional bank loan option is still alive, of course. As is venture capital. But between the two exists a gray space for firms and funds seeking to put capital to work in growing companies that have promising revenues and predictable economics.

Firms like Clearbanc are rising to meet demand for capital, with less risk appetite than an early-stage venture firm, but more than a traditional bank looking for collateral.

Clearbanc

Clearbanc is revenue-based financing system. It offers growth-focused capital to consumer SaaS and ecommerce companies at a flat rate, which is repaid out of future revenues. This system of fundraising is becoming increasingly popular.

This category most likely evolved from the sort of venture debt that groups like Silicon Valley Bank have provided for years.

Generally, revenue-based financing as mentioned earlier is attractive to consumer SaaS and ecommerce companies. Even so, other types of startups can benefit from this alternative startup financing. Fortunately, some firms that lend money to growing companies without an explicit equity stake have found a means to channel capital to them.

Other Alternatives to Venture Capital

At this juncture, let’s cast a glance at five firms that have developed interesting positions in providing alternative sources of capital for startups:

• RevUp Capital, which offers non-equity capital along side other services;
• SEAL agreement, an innovation of Earnest Capital;
• Indie.vc has its own model that is pretty neat as well.
• Lighter Capital; and
• Capital, which uses its proprietary rubric to invest and provide loans.

In spite of any indications to the contrary, selling equity to fund sales and marketing costs might not be the most efficient way to finance growth. If one could recieve $4 at the expense of $1, selling precious equity shares for the same purpose would be gratuitous.

More Options

The playbook for running a successful startup suggests that founders raise money from venture capital firms (VCs). However, venture capital finding its drawbacks. And bootstrapping (self-funding) only works for certain types of businesses.

Fortunately, apart from institutional capital there are other opportunities to fundraise. Each has their own peculiar proposal, and downsides. Yet these alternatives can be distinguishing factor that sets your business towards the paths of success. Here are three non-VC ways to fund your business that shouldn’t be kept out of your radar.

Crowdfunding

Crowdfunding is one amazing way to raise funds. It has been gaining lots of popularity lately. Not only would you raise the money, you also stand a chance to receive valuable feedback from consumers and gain brand exposure.

It is noteworthy to add that crowdfunding is not a traditional fundraising approach. It’s more like pre-selling your product. Let me explain.

How Crowdfunding Works

Firstly, you will have to enter a detailed description of you business on a crowdfunding platform. Then specify the goals of you business, how you plan to make profit, how much funds you need, for what reasons you need them, and how long it will take you to recoup profits on investments etc.

By doing this, potential consumers can read about the business and provide the funds you need if they like the idea. To invest they will have to make online pledges with the promise of pre-buying the product or giving a donation. Thereupon, anyone can contribute money toward helping a business that they really believe in.

Yes, I know the process involves a great deal of work. Besides, I don’t know of any other option that provides cash flow, consumer feedback, exposure and customers. If your idea, or product, fits well with this model, it’s a superb arterial to delve into.

Why You Should Consider Crowdfunding

The most amazing part about crowd funding is that it generates interest, therefore, it helps in marketing the product and acquiring capital altogether.

It has an added advantage as it helps you ascertain whether there will be any demand for the product you are working on when you are not certain. Also, it cuts out professional investors and brokers by enabling the common people to provide funds.

Crowdfunding Platforms

Indiegogo, Wishberry, Ketto, Fundlined, Catapooolt, Kickstarter, RocketHub, Dreamfunded, Onevest and GoFundMe are notable crowdfunding platforms. Although they serve the same purpose, they do possess some unique features. Explore these and other platforms to know the one that best suits you.

NOTE: You are bind legally to use the funds to produce and fulfill what you’ve promised. Also, since crowdfunding is a competitive place to receive funds, you need to have a concrete business plan to gain the average consumers’ attention. Crowdfunding may not work for you if all you have is a simple description and some images online.

Winning Competitions to Raise Funds

Another interesting avenue to raise funds is by winning competitions. This, to a large extent, has helped increase fundraising options for promising startups. It encourages founders to develop business ideas to set up sustainable businesses. In these contests, you either required to build a spectacular product or prepare a rock solid business plan.

Apart from winning the grand prize the emerging winner of these contests can also get some media attention. More so, even though you end up as a runner up, you can also gain a considerable measure of media exposure.

What You Need to Win Competitions

You need to make your project exceptional in order to improve your chances of success in these contests. Deviate from status quo and avoid mediocrity. Resist urge to repeat the schema of an existing project.

You can decide to present your idea in person or pitch it via a business plan., whichever is best suited for your project. However, irrespective of how you choose to present you idea, it should be compelling and compendious enough to make anyone believe that your idea is worth a shot.

Equity Crowdfunding

Equity Crowdfunding as the name implies is combination of crowdfunding and equity fundraising. Nonetheless, this approach to raising funding involves using equity in your business as a form of payment.

Requirements

First you’d need to create a campaign page. Then enunciate the terms of your fundraise, provide the detailed information necessary to be SEC compliant and to fulfill obligations to prospective investors. Lastly, you launch the campaign.

Security Token Offering (STO) is a new method for equity crowdfunding. This is possible as a result of the emergence of blockchain and cryptocurrencies.

StartEngine, an equity crowdfunding platform, assists 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 gives an additional options to investors that normal equity investors don’t have.

Fundraising With Business Incubators & Accelerators

Incubator and Accelerator programs are a funding option at the early stage of businesses. These programs provide support to several startup businesses each year. And are available in most major City around the world.

There are some essential differences between business incubators and accelerators, though often used interchangeably. Like a parent to an infant, incubators nurture businesses by protecting them with shelter-like tools, training and fostering the business network.

In contrast, accelerators are a bit more limited. While accelerator assist the business to run or take a big step forward, an incubator nurtures and teaches the business how to walk on its own.

These programs require time and commitment from the benefactors as they usually run between four to eight months. You will also be able to make good connections with mentors, investors and other fellow startups using this platform.

In Nigeria, companies like Flutterwave, Andela, Paystack, Kudi.ai, Kobo360, ThriveAgric, WalletsAfrica (formerly Wallet.NG), BuyCoins, Tizeti, VertoFX, 54gene, CredPal, Schoolable, Aella credit and Buypower started with an accelerator — Y Combinator.

In US, companies like Dropbox and Airbnb started with an accelerator – Y Combinator.

Government Programs That Offer Startup Capital

In different parts of the world, government have come up with different programs to support startups in their region.

For instance, in Nigeria, the government of Edo State commissioned an innovation hub for startups in June 2018. To serve as a complex as well as to facilitate cross pollination of ideas amongst startups in the state. Since then, the government have launched a couple of funding programs for these businesses. Thereby, emulating the precedence set by the Lagos State government.

In North America, there is a small business lending fund and dedicated portal for government grants available for local businesses. Government grants are available provided you comply with the eligibility criteria, You just need to make yourself aware of the various government initiatives. This certainly is one the best funding option.

In India, the government has launched thousands of Crore Startup Fund in Union budget to improve startup ecosystem in India. Also the Indian government has launched ‘Bank Of Ideas and Innovations’ program to foster innovative product companies.

Debt and Blockchain

Startups are less able to pay the interest on loan since they do not normally possess good cash flow. For this reason, it not a common path for many startups to raise capital through a debt. For the rates can be very high.

Nevertheless, there are times when a loan is pratical. For example, you want to start a marketing campaign, need to order inventory, or launch a cloud hosting service for your software. Debt financing is a good option. For it is okay to avoid diluting yourself (venture capitalist) for a short-term need.

Blockchain technologies and cryptocurrencies are revolutionizing traditional credit offerings. Which is similar to how crowdfunding disrupted the way business owners access traditional capital.

Startups founders can now use their cryptocurrencies as collateral, instead of using traditional forms of collateral. Equilibrium (EOSDT) is a platform that lowers the market risk from the price fluctuations that are notable with cryptocurrencies while also accessing needed capital.

This allows founders to generate a stable coin, which is a tokenized asset created to have the characteristics of cryptocurrency but with the stability of legacy assets.

Closing Remark

Rather than complacently relying on orthodox sources of funds, startup founders need to critically examine every new possible funding option that exist. Learn more about each of these opportunities to raise money and utilise what best suits your business as soon as possible.

For it usually best to explore new options because the level of competition would be low. You’d be surprised at how high you would reach when you carefully yet swiftly try new options.