Business Funding Alternatives to Venture Capital
Making money always takes money, and no matter how promising your business idea may be, you will need capital to get it off the ground. Traditionally, new enterprises have relied on venture capital firms to finance their startup costs, but this source isn’t suitable for everyone. By considering business funding alternatives, you can obtain the finances you need to give your company a strong start.
Bolstering Your Potential with Business Funding Alternatives
As a new entrepreneur, the last thing you want is to limit yourself to a single model for growth. Venture capital firms tend to make assumptions about which types of businesses and ways of doing business that will be promising investments.
These assumptions can seriously stifle your company if:
- You want to work in an industry that is already mature
- You are not male, young, white or Asian, or otherwise a majority demographic that typically secures funding
- You project a relatively slow rate of growth for your company
- Your business is seasonal
- You sell physical hardware
Even if you do ultimately decide to get your funding from venture capitalists, it’s still good to consider business funding alternatives. The better you understand all your financing options, the more negotiating power you will have with venture capital firms. Considering alternatives also makes it easier to go elsewhere if you don’t agree with venture capitalists’ vision for how you should run your company. This gives you the freedom to do business as you see fit.
An Array of Alternatives to Finance Your Firm
If you’ve only ever considered venture capital, you may be surprised to learn the sheer number of alternatives you have for funding.
- Friends & Family – Never overlook your loved ones as a source of funding. Given that they already know you well, it will be easier to convince them of your skills and potential. Be careful, however, not to take this funding for granted, and to pay back the loans you receive with interest just as you would venture capital.
- Crowdfunding – This involves raising capital through small contributions from large numbers of people, usually over the internet. Crowdfunding is most effective if you offer to send your patrons a reward, such as a free product or service, a charitable donation on their behalf, or equity in your company.
- Bank Loans – If you are willing to personally back the loan and have accounts receivable or inventory to use as collateral, a simple bank loan is often enough to get your company going.
- Bootstrapping – This approach looks internally. You “raise capital” by making your business more profitable. Typically, that’s done by cutting costs. Perhaps you negotiate with supplier for better terms. Or you share office space with another business owner rather than renting your own space.
Remember that with some ingenuity and creative thinking, there are alternatives to venture capital when you need an infusion of cash.