We talk to startups and investors, you get the value.
We talk to startups and investors, you get the value.
Have an idea, but no money to implement it? Fortunately, today there are many answers to the question of where to get funds for the implementation of the project. We understand the main sources of funding and help for startups.
Behind a convoluted term hides an elementary solution: do without external funding and cope on your own. If you want to create a small company and have 100% control over it, it makes sense to limit yourself to funds from the car you’ve sold or FFF (Friends, Family, Fools). At least for the first time.
The advantages of bootstrapping are independence and complete freedom in decision-making. You will only be responsible to your clients, and if you do not have capital, then you will not lose it. Besides, not all startups dreaming of investment end up receiving it. And the time spent on developing a selling business plan and finding investors can be instead devoted to developing your idea.
The downside is that you have to tighten your belts (bootstrapping literally means tightening the straps on your shoes). On the way, there will probably be a lack of funds, limited resources. “Sold my apartment to start a business” kind of stories sound attractive only when everything has already worked out. Moreover, bootstrapping implies slow growth. For newbies, this is not so bad: it is not always possible to manage venture capital wisely, and you can learn on the go. But for those looking to scale quickly, lack of investment will be a drag.
To stay afloat, you need to tap into the market as quickly as possible and do what generates income. And the most effective steps don’t always match the ones you wish for. On the other hand, it teaches ingenuity and makes you always be on the move. And pumping up various areas of business, performing the functions of a marketer, a designer and a courier when there is no money to hire the required number of specialists will help to manage a grown business. Just to inspire you a little I’ll remind you that many giants started with bootstrapping: Microsoft, Apple, Facebook among them.
The main advantage of grants is that you don’t need to give a share of the company to anyone, nor do you need to return the money afterwards. In theory, this is an ideal option to launch a startup, create an MVP and find investors on good terms once there are first achievements. In practice, there is one catch — it is not so easy to get a grant, and it takes a lot of time.
Grants are allocated by both state and private funds, organizations and programs. Most often socially significant or innovative projects and scientific research receive funding this way. But the system of grants is now quite extensive, and companies of any level and focus can count on such “free” assistance.
Joining the world of grant support from scratch is not easy. First you need to find a suitable offer, because there are many conditions for participation in the competition: a suitable industry, qualification level, document requirements, age of participants. Making a successful bid is a separate art altogether. Special companies can help deal with these stages, but if successful, the money will have to be shared.
Another disadvantage of grant aid is reporting. It is impossible to deviate from the planned program, even if the advantages of another direction are obvious. And grants are not the best option if you need money right now. It can take a long time from the moment of submission to actually receiving funds. But even with all the difficulties, money without obligations is such a pleasant prospect that many founders are ready to spend time on it and hope for the best.
Both getting a grant and participating in competitions for startups is a very energy-consuming process. When preparing presentations, pitches and filling out applications, you can miss the main thing — business development. But such events are full of unexpected and pleasant surprises, so the time spent on them is often justified.
Competition winners will receive prizes. As in the case of grants, this can be gratuitous assistance, as well as training, acceleration, funds for commercialization and other useful gifts for startups. Moreover, not only those who get the winning places benefit from such competitions. This is an opportunity for all participants to improve their pitching skills and tell their story. And with the current popularity of storytelling, if the idea is of interest to the media, you can secure PR for yourself without even taking the first positions.
The jury of startup competitions includes real experts and their opinion, even a critical one, will help to understand in which direction to move. And the most obvious thing is that contests give new acquaintances, among which there may be potential partners, investors, mentors.
External help to startups is not limited to funding. At the initial stages of project development, training of the founder, acquaintances, mentors and even increasing the team’s motivation are important. Incubators and accelerators can help with all this to start a business. Both offer programs aimed at meaningfully supporting startups, but at different stages of their development.
The incubator is suitable at the concept stage. This is a special space where entrepreneurs get a job among like-minded people, access to lectures, useful advice, find themselves in an environment where it is comfortable to draw up a business plan, study the market and create their own product for a fee or on a competitive basis.
When the team is assembled and the MVP is ready, we can assume that the business has grown to an accelerator, whose task is to help in development and growth. Accelerators also offer an educational program, but more intensive and individual, and sometimes provide financial support for a share in the business. It is more difficult to get into an accelerator than into an incubator — for this, a company must make the cut. We did a detailed analysis of the difference between incubators and accelerators in this article.
Incubator and accelerator formats and profiles are different, so it’s important to choose the one that suits you best. Another bonus of participating in such programs is that after such a “school” it will be easier for investors to believe in your product, which, accordingly, will increase the chances of funding.
Crowdfunding is all about an idea and how you can “sell” it. If you have a cool idea, a creative project that is useful for society, even if you want to open another bakery, but you know how to convince people that your life will become more beautiful with your muffins, you can try your luck on the crowd platform.
The nect.Modem startup has carried out a successful crowd-campaign, in this article the team shared the results and tips for using this funding tool.
The mechanism is simple: you upload your project to a crowdfunding site and offer lots for, say, a board game that you want to create. You raise the capital you need, create a product, and send it out to customers who have supported you.
The advantages are obvious: you receive funding, do not lose control over the business (you can raise funds on a crowd platform in a fairly short period), and most importantly, you get feedback from the target audience. If people fund the product you understand it is interesting. If not, it may make sense to refine it before launching. A successful campaign will also be good PR.
Now, let’s talk about the cons. It is not easy and not fast to create selling photos, videos, and skillfully tell your story. To reach the required amount with lots of € 10–20, you need to attract the attention of the audience, which means you will have to work with the media and invest in marketing. When the funds are raised, you will need to send the product out to all customers — can you handle it if there are 500? The crowd site will also charge its percentage of the collected money.
Crowdinvesting can become another financing instrument. The principle is similar, but in this case investors receive a share in the company, and after raising funds, you do not send out the finished product, but return the money with interest. We analyzed the world’s top crowdinvesting platforms in this article.
And this is people’s help again. P2P lending (peer-to-peer) is a fairly new phenomenon that allows you to get a loan bypassing the banking system. The platforms appeared in response to numerous complaints against banks, including bureaucracy, frequent loan refusals and high rates.
P2P platforms are an alternative where lenders can even be individuals who have spare cash, and it is easier and faster to get loans than in a bank. Peer-to-peer lending is gaining popularity, and these platforms are appearing in new countries. There are sites that focus on P2B lending, in which case individuals allocate funds specifically to help small businesses. This option can help out if the founder wants to do without venture capital, but cannot get a loan from a bank.
One of the most effective tools for business expansion is strategic partnership. If your product can be useful or meets the aspirations of a particular company or corporation, it makes sense to use it.
Partnership in business is as old as the world, however, each case is quite individual and unpredictable. First of all, you need to understand why you need cooperation. Is it access to new markets, advertising, exchange of experience, increasing brand awareness or increasing the client base? It is also very important to think how your business can be useful to a potential partner, especially when it comes to a larger player.
Finding “your” partner is a difficult task, but building relationships, especially if you are aiming for long-term cooperation, takes even more effort. Cooperation can be based on a verbal agreement or be legally formalized. In either case, details cannot be overlooked and all the nuances must be discussed in great detail at the stage of negotiations.
Business angels are individuals who are usually experienced entrepreneurs ready to share their funds and knowledge with newcomers in order to make money on it. The angels receive a share of the enterprise in return for their help and, in fact, become business partners. The main disadvantage of such financing is the partial loss of control over the company.
Business angels are ready to take risks and invest in startups at the earliest stages, even in a new industry for themselves, if the founder inspires confidence in the sponsor. They are called angels because they don’t just invest funds in the project but also their soul. At least every startup hopes so. It is important to choose an investor who can assist you in the role of a business consultant.
Private investments, as a rule, are smaller than venture capital in terms of check size, but the terms of business angels are more flexible, and it is easier and faster to get financing in this case. We talked about the difference between business angels and venture capital funds in this article.
Venture investing opens up tremendous opportunities for a startup and, in fact, gives you access to unlimited capital: after all, the more trust in your project grows, the more people will want to invest in you. The huge advantage of venture capital funds is that help doesn’t end with funding. Investors are interested in rapid growth of your business and will contribute to this through training, mentoring, advertising and all kinds of support.
The difficulty is finding investors. Any venture capital investment involves great risks, but nevertheless, in order to receive funding, a company must undergo a thorough assessment for the possibility of making a profit, and using metrics to prove the scalability of the idea. And it is also important to choose the right venture organization, because each of them has its own focus, guidelines and requirements.
The lack of this kind of financing is losing ownership of the company. The business is subject to strict requirements for implementation, disclosure of information, possibly even interference with management and the presence of one of the investors on the Board of Directors. Therefore, even at the stage of raising investments, it is important for the founder of the company to decide for themselves whether they are ready for such restrictions.
Revenue-based investing (RBI) is a fairly new tool for business growth, in fact, it is a loan from venture funds, but without a share of capital. This method is only suitable for startups that have already achieved sustainable growth, generate monthly income and are ready to increase sales.
Thus, if your business has already proven to be a success and you need additional funding to scale it but cannot apply for a bank loan, RBI will be the way out. Venture investors get access to your statements and reports (and this is one of the disadvantages of the tool) and analyze a startup for RBI suitability, including using neural networks, which can reduce the time for assessment to several hours. Check out Corl that is one of such services.
Rapid technological analysis stimulates prompt decisions. Investors determine the rate that covers their risks and generates income, and you receive financing. The downside is that lending rates are high, but at least there is no need to give a share of your startup to anyone. Subsequent loan repayments are linked to income. There is no fixed amount, the payment increases in a month with a larger revenue, and during a difficult period there is no pressure from investors.
Those who start a startup in the social sphere have the opportunity to receive funding through impact investing, in other words, to receive socially transformative investments. Global social and natural problems of the modern world require solutions, and for the last decade business has been actively engaged in this and has been investing money in solving such problems.
Impact investing involves investing in a business that should both generate income and positively affect the world around us. We are not talking about charity, investors are waiting for the payback of the project, but the demand and rates in this case are different than with venture financing.