Are you interested in considering some of the alternative forms of financing for your startup or small business? Hi, I’m Riley Rogers, and we’re going to walk through four different types of alternative funding for your startup or small business.
Option 1. Crowdfunding Through Kickstarter
The first is Kickstarting, or broadly speaking, crowdfunding. Through crowdfunding, what you’re doing is pre-selling your product to a large market under the assumption that your product might be very early stage.
What you’re able to do through crowdfunding, and some of platforms like Kickstarter, is market your product to a large audience and use that as a way to finance your business. Many consumer products, and those related to arts and crafts, have used Kickstarter, IndieGogo, and other platforms as a way to get their businesses off the ground, while other forms of financing could have been very difficult to acquire.
On Kickstarter, the key is being able to find something that has a mass-market appeal and a very unique story. Businesses that are able to tap in and make an excellent video and an excellent pitch have found tremendous success on Kickstarter. It’s another new platform among others to use to finance your business.
Option 2. Equity Crowdfunding
Another way to crowdfund your business is actually through equity crowdfunding. With equity crowdfunding, what you’re able to do is crowdfund from many different types of investors and create a syndicate to pull that capital together.
Similar to thinking about Kickstarting, you want to be thinking about a wide audience of investors who might be interested in your product or investing in your company. Through equity crowdfunding you can offer your early adopters and supporters a way to get some bonus in addition to simply purchasing your product.
Option 3. Grant Funding, SBIRs & STTR, Pitch Contests, Accelerators
Another alternative form of financing is grant funding. Grant funding is a great option for companies graduating out of labs, research institutions, and other academic organizations. Grant funding can provide a non-diluted form of financing to research and development-oriented businesses or products. It offers a way to raise a significant amount of money to further develop your idea.
SBIR’s, or Small Business Innovation Research grants; STTRs, Small Business Tech Transfer grants are two popular sources of grant funding among many others. If you’re in a space that has a high R&D component and your product could interest two large government organizations like the Department of Defense, then there will frequently be grant funding options available to you.
Pitch Contests & Accelerators
Another alternative form of financing for early-stage companies and small businesses are pitch contests and accelerators.
Related: How to Create the Perfect Pitch Deck
Pitch contests offer a way to present your idea and your business to an audience while competing against other startups to try to win a prize. Here in Boston, there are pitch contests that can reward up to $100,000 to companies. This can be a great way to finance and grow your business without giving up equity or taking on debt.
Accelerators, on the other hand, can help incubate and grow your idea and accelerate the growth of your business. Many accelerators, including Mass Challenge, Tech Stars, and Y Combinator have great resources to help startups get off the ground.
This also a great source of funding, as there are many prizes awarded and many investors who are eager to participate in your business.
Option 4. Bootstrap Your Business
The final option to consider if you’re looking into alternative ways to finance growth is to think about bootstrapping.
Related: How Do You Bootstrap Your Business?
Although it is not always the sexiest term, there are many successful companies which have been able to finance growth organically and take advantage of the fact that bringing on capital isn’t always the best option.
You often need to prove your idea or your technology before seeking investors. Bootstrapping can be a great way to get funding at an early-stage while proving to future potential investors, both on the equity side and on the debt side, that you’re less of a risk.
Risks & Other Factors to Consider when Crowdfunding
Another important factor when looking into crowdfunding or Kickstarter is to understand that unfortunately many campaigns do not hit their goal. The key way to ensure your success is to build a strong network and an attractive way to market your campaign to a large audience. If you are able to get major press outlets talking about your campaign and your idea, you can ensure a much greater chance of success.
Grant Funding Is Not Widely Available
If you’re thinking about grant funding, although it’s not dilutive and an excellent option, it’s important to understand it’s not available to many companies and many startups because they don’t have the high R&D component. There are other forms of grant funding, but this can be very time-consuming and still might not be available.
There Are Many Ways to Bootstrap Your Business
If you’re going to consider bootstrapping, there are other ways to grow your business like recruiting employees for equity and not offer salaries in early days. Are you able to work part time and get off the ground that way? And are you able to grow your business slowly and not necessarily follow the “startup mentality”? If so, bootstrapping can be a good fit.