7 ALTERNATIVE SOURCES OF FUNDING BESIDES VENTURE CAPITAL

13 Jan 2016

 Many early stage entrepreneurs are often faced with the question “When should we seek venture capital funding?” It’s an important question because growing business need funding, and need to raise them from specific sources. The most common way of raising funds is through venture capitalists, but you should take the time to find the right type of capital to match the specific needs of your startup. Not all businesses are suited for VC funding. In this article, we discuss a few alternative sources to Venture Capital funding.

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1. Bootstrapping

Sometimes, the best option to is to fund your business out of your own savings. Bootstrapping involves cutting a lot of unnecessary costs while starting up. You will have founder’s equity. There will be no dilution to the founders if there is no outside funding. If your bootstrapped startup is getting some traction, and if you need it, you can then go raise a round of funding from venture capitalists.

2. Debt

Depending on the stage of the business, debt may be a viable option for the company. Debt is cheaper than equity although it might not be apparent at first.

3. Angel investors

Friends, family, high net worth individuals, professional angels, and people from the industry may all be viable sources of capital when VC money is not an option.

4. Private equity

Many smaller market private equity funds can work a slower growth, yet profitable business. Certain investors prefer these types of investments as it fits into their portfolio and risk profile.

5. Cash flow from operations

You can invest your profits in areas that will create high returns on investment. First you will need to figure out how you can maximize cash flow, and then use that cash flow to fund high value investments. Use the profits, not the revenue for growth. Relying on up-front payments as a financing mechanism will drastically reduce your need for seeking outside capital.

6. Bank loans and lines of credit

Bank loans typically must be backed by inventory or accounts receivable, and often require a personal guarantee.

7. Government And Private Grants

Government grants are a great source of funding for your business, as grants don’t dilute equity. It is especially prudent to seek this type of funding if your business is in the educational or social areas. Grant money is a great fit for R&D of technology.

Understanding that there are various sources of funding besides venture capital is very important, as all businesses might not be the right fit for and also might not even need VC funding. Choose the right type of funding that will be strategically advantageous to your business.

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