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Alternative Ways to Fund a Startup

Venture funding is not the only way to get money and many times it’s not necessarily the best way. Here are some alternatives to raising venture capital:

Bootstrapping

You can start a company without any outside funding.

Bootstrapping means using cash you generate from your business to fund its growth. You can bootstrap a business with your own money, or by getting a loan from a bank or family members.

Bootstrapping is harder than getting funding from an investor, but it has several big advantages:

You have full control over your company. You have no outside investors telling you what to do.

You don’t have to give away equity in your company. You retain full ownership and can keep your company private.

If your business becomes profitable, you can have a big financial windfall.

Crowdfunding

Crowdfunding is a new way to raise money. It’s been around since 2006, but it’s getting more popular.

With crowdfunding, you do a big fundraising campaign and get thousands or even millions of people to invest in your business.

There are currently two main types of crowdfunding:

Donations Crowdfunding

Donation crowdfunding is like Kickstarter or GoFundMe. You ask people to donate to your business. This money is a donation, not an investment.

Investment crowdfunding is like AngelList or Indiegogo. You offer people equity in your business in exchange for their money.

Crowdfunding is a great way to raise money. You don’t have to give away equity in your company, and you can do it without being a rich person.

Angel investors

Angel investors are rich people who invest their own money in startups. Angel investors typically invest their own money, not other people’s money. This is different from VC funding.

Angel investors typically invest small amounts of money. They might only invest $10,000 to $100,000 in a startup.

You can find angel investors and pitch them your business idea. If they like your business idea and you seem like a good entrepreneur, they might invest in your business.

I’ve found that angel investors are much easier to get a meeting with than VCs.

Crowdfunding + angel investors

This is a hybrid approach that I think is a good compromise between crowdfunding and VC:

Instead of doing a standalone crowdfunding campaign, you do a campaign as a supplement to your angel investors.

Angel investors are the first people you go to for money. If they invest, you don’t need to do a crowdfunding campaign.

If they don’t invest, you do a crowdfunding campaign as a supplement.

I think this is a good approach because it lets you raise a significant amount of money, even if your fundraising campaign fails. It also lets you retain full control of your company.

Friends & family investors

You can also get money from friends and family. They don’t have to be rich. You might have friends or family who will invest $5,000 or $10,000 in your business.

Friends and family investors are people you already know. They can be easier to get meetings with than angel investors.

However, there are some disadvantages to friends and family investors:

You might be too emotionally attached to them. You don’t want to hurt your relationship by not paying them back.

You might have to do extra work to make sure they are protected. For example, you might need to do a complicated legal agreement to spell out the terms of their investment.

Revenue-based financing

Revenue-based financing means getting money from investors in exchange for a portion of your future revenue.

Revenue-based financing is different from debt financing. With debt financing, you borrow money and pay it back with interest. With revenue-based financing, you don’t pay it back. Instead, you give away a portion of your revenue.

Revenue-based financing is a great way to raise money for your business. You can raise money without giving up equity. You can also raise it without worrying about the valuation of your company.

Debt financing

Debt financing means getting money from a bank. This is different from revenue-based financing. With debt financing, you borrow money and pay it back with interest.

Debt financing is a good way to raise money for your business. You can raise money without giving up equity. You can also raise it without worrying about the valuation of your company.

Crowdfunded debt financing

This is a hybrid between debt financing and revenue-based financing. You take out a loan from a bank and then offer to give a portion of your future revenue to your investors.

Crowdfunded debt financing is a great way to raise money for your business. You can raise money without giving up a lot of equity. You can also raise it without worrying about the valuation of your company.

Want help navigating funding your startup?

That’s all of our ideas for the moment. We’ll add more as they come to us.

If you’re pursuing any of these methods of funding your business you’re going to need to make sure your financial house is in order. We’re here to help.

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