Any startup founder must grapple with a basic question: Where do I get the money to start my business?
Unless you’re a trust fund baby with an endless supply of the stuff, you’ll have to get it from elsewhere.
So… where do you get it?
I’ve started a few businesses. In the process I’ve garnered experience in the development of different funding methods. No matter the method, however, traditional funding in general has some major upsides. It also has some downsides.
With that dual perspective in mind, let me share with you a few of the facts about startup funding today. My goal here is to help you make the very best funding decisions for your startup, whether they be traditional or unconventional.
In either case, funding a startup is a major undertaking. It’s going to influence the entire existence, operation, history, and legacy of the business, so it’s best to do it wisely.
1. Conventional startup funding skews business valuations.
Startup funding is a mess right now.
The world is agog at the unicorn startups with multi-billion dollar valuations. But what about those valuations?
Often, they are inaccurate.
Pundits and prophets have identified a “dirty secret inflating tech bubble” that is threatening to undo the entire legitimacy of tech funding.
The dirty secret is this: Valuation is way off for many tech startups.
The scary future is this: Conventional funding is going to dry up.
The funding faucet won’t shut off completely or instantly, but the torrent will turn to a trickle.
What lesson should you learn? Don’t rely on the possibility of mighty valuation or a flood of funding.
The funding industry is in flux right now—and unfortunately—startups will end up getting tossed around.
2. Conventional startup funding requires that you know someone. Or know someone who knows someone.
Angel investing makes it sound as if some harp-holding deity from on high will swoop down to offer you money.
Obviously, angel investors have neither wings nor unlimited amounts of cash. Typically, the deals that they fund are transmitted through a narrow pipeline of friends, confidants, and incubators.
Unless you know someone or know someone who knows someone, the possibility of your securing a major investment from a benevolent angel is slim.
3. Self-funding forces you to focus on revenue.
As a startup entrepreneur, you must be focused on one thing: revenue.
There’s no better way to snap on the revenue goggles than to pony up your own startup cash.
Focusing on revenue is one of the fastest ways to become profitable and remain profitable in record time.
Conventional funding, by contrast, forces you to focus on fundraising. Instead of doing what you do best —marketing, producing, managing, whatever —you are required to dress up and present your ideas.
You’re an entrepreneur, so your most valuable commodity is time. Which would you rather spend your time doing?Asking for money, or making the money.
Sure, there’s a bit of a chicken-and-egg conundrum there, but if you have a modicum of cash to invest in your business, you might want to go ahead and investment. If you believe in it, invest in it.
To focus on your revenue is invaluable, and that’s what you’re buying when you self-fund your startup.
4. Crowdfunding is a legitimate source of funding.
When you think of “crowdfunding,” you’re probably thinking “Kickstarter” and “GoFundMe.”
If so, then you’d be spot on.
Those websites and others are the most popular and well-recognized crowdfunding websites. There are a host of other, smaller funding sites that cater to specific groups and types of business.
I’ve heard all the common objections to crowdfunding. It takes a lot of resources, effort, logistics and risk.
Sure, but the risks of crowdfunding are no greater than the risks in any other type of funding.
Look, funding is endemically risky for all parties involved. Heck, entrepreneurship is risky. Be at peace with risk, and don’t table an idea just because it has an element of risk.
If GoFundMe isn’t your style, that’s okay. Take a website like Angel.co, for example. Technically, it could be called a crowdfunding site, but it’s also a job board, investor meeting place,and networking website. Plus it’s pretty darn effective at raising money.
In 2015, Angel.co raised $163M for 441 startups from 3,379 investors. With each investor placing less than $50,000 into his or her investments, Angel.co offers a low-risk investment conduit and an even playing field for startups.
5. Bank loans are just as appealing an option as any other source of funding.
Don’t overlook the obvious. Somewhere in your neighborhood is a solid and reputable bank that is willing to loan you some money to jumpstart your business.
Sure, it’s not quite as sexy as a Silicon Valley VC firm offering you massive amounts of money. But the essence of a startup isn’t slick presentations in VC offices. The essence of a startup is starting from the ground up. If your neighborhood credit union can give you the cash quicker or more effectively than a Silicon Valley VC, then hop in your car and drive to the credit union!
Conclusion
The pursuit of funding is changing. Entrepreneurship is still a viable option for your future success. Many startups will still accomplish their goals despite the change in the winds.
Alas! Like any era of competition-driven business, the rules are constantly oscillating. Creativity, determination, and instinct will win the day, however. And not relying on the funding models of a bygone age in a good place to start.
What are your best insights for gaining funding for your startup?
