While startups have been around forever, recent billion-dollar success stories from Silicon Valley have put them at the top of everyone’s minds. Startups — innovative businesses that exploit unexplored opportunities — are seen as economic saviors by governments all around the world. There is considerable prestige in creating one.
Most startups, though, tend to be launched by entrepreneurs with little financial backing. While you may self-finance up to a point by tapping your home equity and maxing out your credit cards (the founders of Cisco, the networking giant, did exactly this), you can only go so far under your own steam. Past a point, you need to find some way to fund everyday operations, expansion plans, marketing and innovation. What kind of creative options do you have access to when it comes to getting your startup off the ground?
You may not get a business loan; you may try online lenders
Kabbage, OnDeck and many other business lenders operate online, and welcome startups and other non-traditional entrepreneurs. Where the conventional bank loan application process can take weeks to process, online lenders operate in time spaces counted in mere days. In a recent Lend It conference, the secretary of the treasury, Larry Summers, expressed his confidence in the online lending industry.
You may tap potential customers
If you have a product that appeals to business customers or wealthy ones, you could tap invoice advances. You market your product well enough to fill up an order book, and then treat these future sales as tradable assets. With proof that you have money coming in through sales, you can go to an invoice advance lender, offering it as collateral. Once you have your advance, you can either repay your loan, or merely let payments that customers make go directly to the lender.
With invoice advances, you have a full order book, but no payment. With some products, though, customers will gladly pay in full in advance before they even see a product. If you are able to sell your idea well enough, you may be able to get customers to pay for products before you even make them. It tends to work well with innovative consumer product ideas that generate excitement and enthusiasm.
Successful pre-sales funding can take some careful coordinating. It’s important to make sure that funds obtained aren’t used up in a way that would make product manufacture difficult.
Enter a contest
In startup contests of skill, you get to present your business plan to a panel of judges who adjudicate the best plan to award grants to. It isn’t just the cash prize that helps. Going through the requirements of a contest can be a great way to hone one’s business skills. Startup competitions are everywhere. From TechCrunch Disrupt to Web Summit, 7VPD and LeWeb, there are a number of possibilities.
A government grant may be forthcoming if your startup is in a research-based field. The Small Business Innovation Research and Small Business Technology Transfer programs by the government champion these grants, and hand out several each year. While the application process can be grueling, you do have access to free money with no strings attached.
Finding funding isn’t just about the money
According to CGK Business Sales, businesses that are successful at obtaining funding are able to burnish their reputation as desirable investment destinations. They tend to be able to attract better talent and even better customers. Whether your business requires additional funding or not, it’s always good to go after high-profile alternative funding methods.
Whether your startup is in the business of creating disruptive apps or innovative physical products, funding may need to come the profits generated by a more stable business that you run. While the idea of running two businesses together can seem difficult, it can actually make a lot of sense. If you’re a first-time entrepreneur, cutting your teeth on a business that you don’t care as much about as your real one, will give you better business chops. Having one business subsidize another is an idea that has long been successfully tapped in multiple business areas.
Finding angel investors
While venture capitalists typically only invest in startups that have proven themselves, angel investors come in at a much earlier phase in a startup’s life. The decision-making process on your application is likely to move quickly once you apply. Angel List and other services can be great resources for entrepreneurs attempting to locate angel investors.
Your decision could change the way your business is perceived.
Greg Knox has nearly 20 years of experience in the financial industry. In addition to helping small business owners sell their businesses, Greg worked in investment banking, private equity, and at one of the largest hedge funds in the world. Prior to his buy-side experience, he worked at financial institutions such as T. Rowe Price, Deutsche Bank, and Wachovia Securities. Before founding CGK Business Sales, Greg spent 5 years as one of the Austin business brokers who helped local business owners at VR Mergers & Acquisitions, where he finished in the top 10 associates across their worldwide network in 2011, 2012, and 2013. Greg holds a Bachelor of Arts degree in Business Administration from Franklin & Marshall College and an MBA from Cornell University.