Venture capital is a strategy by investors used to answer the financial startup needs of companies and small businesses that have a long term growth potential. Venture capital stands as an answer where capital markets are inaccessible.
These are some alternatives to venture capital:
1. Friends and Family
Tapping into your close support system is an obvious first step for fundraising. While this is a very common and effective first step, beware of some of the issues associated with a friends and family round. First, it’s unlikely that your friends and family have pockets as deep as a VC firm so the amount of funds you are going to be able to raise are limited. You may need to raise small amounts of capital from a large number of people which can be somewhat hard to manage. Also, it can be a bit uncomfortable borrowing money from friends and family who are, generally speaking, unsophisticated investors. To avoid unnecessary awkwardness, be upfront and completely transparent about the risks of investment—and don’t accept any money that your friends and family can’t afford to lose.
2. Angel Money.
There are other sources for seed money outside of your friends and family. Countless professional angel firms that can also be viable options for early-stage companies.
3. Loans
If your company is already generating some revenue, you may qualify for a loan. This can be a good option if you qualify. Unfortunately banks aren’t into taking great risks with their funds so if you don’t yet have steady revenue, you may not qualify. But banks aren’t the only place to get a loan; you may also qualify for a loan from a venture debt fund or other finance company.
4. Credit
Using your credit line to get the capital your company needs is pretty easily done if you simply charge away! The downside is that your personal credit can take a hit if your company doesn’t perform as expected and you can’t pay back the funds on time. If you can stomach it, the low returns demanded by your credit card can be pretty tempting. And know that you’re in good company: You certainly won’t be the first company to use credit to grow your company.
5. Crowdfunding
While you may never be a crazy Kickstarter success story, the growing trend of crowdfunding can still work for you. What’s great about crowdfunding is that it forces you to build your brand and, subsequently, builds your customer base, right from the get go. As your funds are growing, so is your exposure. Crowdfunding isn’t the answer for everyone, but it is an interesting road to explore.
6. Strategic Partners
It might be worth your time to seek out businesses with which you could create a strong partnership—they may even be interested in a potential future M&A option. This might be a business that sells a complementary product or service to your offerings or in other ways offers something that could be considered added value to your business. Additional capital can be found in this synergy.
7. Government grants
Granted this is only a real funding option for non-profit organizations, but it’s a great option. There are many grants available for entrepreneurs. The SBA site can be a good place to start your search for available government funds.
I offer this list of funding alternatives not to say that these are your only options, but to give you a clearer perspective on funding. In other words: VC is only one of many funding options available to you. There’s nothing wrong with VC, of course, but pursuing other funding options can be a strategic move for both growing your business and strengthening your negotiating position if and when you decide that VC is what you do need. Start by clarifying your company goals and your capital needs. From here you can decide what road to go down to achieve your goals.
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