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Believe it or not, businesses can thrive without the help of investors.
There are many reasons why entrepreneurs choose not to seek funding from venture capitalists.
Some people don’t want the headache of having someone else tell them how to run their business, while others would rather spend their time working on their business rather than the time-consuming task of finding the right investment partner.
Maybe it’s because it’s a VC Investments to fall 35% in 2023Investor spending is slowing.
Whatever the reason, there are alternatives to venture capital for founders looking to move their business forward. In this article, we’ll introduce four viable options and discuss their benefits, challenges, and when entrepreneurs should consider them.
Related: How we raised $100 million without any venture capital funding
Crowdfunding
Asking customers for financial support can be a good option for businesses, which is what crowdfunding is all about.
Sites like Kickstarter, GoFundMe and Indiegogo have helped entrepreneurs with great ideas get funding from large numbers of potential investors without the constraints that often come with venture capital.
These crowdfunding sites allow people from all over the world to invest small amounts of money in ideas they believe in. Setting a goal and asking potential consumers to help you achieve it not only helps you raise the funds you need, but it can also be a great way to pre-sell your product and increase market awareness.
It still requires a focused marketing effort (minimum budget of $50,000) to cut through the noise of millions of other startups with the same idea.
Another danger is that you put a lot of effort and resources into reaching your goal, only to fall short and lose all the money you raised. Crowdfunding sites usually only pay out funds if your goal is reached on time, but even then they charge transaction fees.
Timings to consider: If your product is creative, innovative, and consumer-centric, it is more likely to capture public attention and receive sufficient financial backing to be successful.
Angel Investor
While your business may not be able to secure the same amount of investment as a traditional venture capital firm, angel investors can be a viable funding option.
These wealthy individuals seek out exciting startups, usually in the industries they know best, and invest their personal funds in them, hoping to make a business idea they truly believe in successful.
Funding from angel investors provides access to capital similar to traditional investors, but the investment usually does not have as many constraints. Some angel investors are also willing to take on the role of mentor. The right angels will leverage their connections and knowledge base to significantly accelerate business growth, resulting in improved collaboration.
However, as with traditional investments, angel investors expect ownership of the company and participation on the board of directors, which can create complications, especially if they have different expectations than the founders.
They put in their own personal funds and are more risk averse, so they usually invest much less than venture capitalists.
Timings to consider: If you’re an early-stage startup that needs more capital than you can get from bootstrap or crowdfunding, you can bring a new and compelling concept with a solid business plan to life.
Related: 7 Things That Distinguish Angel Investors from Other Early-Stage Investors
Subsidy
If you’re looking for more flexible funding opportunities, you can always apply for grants.
There are many options for grant funding for startups, including from federal and state governments and private companies, that don’t require you to give up control of your company and offer flexible repayment options if needed.
The application process is lengthy and competitive, but if you have more time than money, it’s worth the effort. You could also consider a grant writer; some will work with you on a contingency fee if they believe you’ll be successful.
You should also consider that some grant providers may place restrictions on how you can use the funds, limiting their impact on your business growth.
Timings to consider: If you work in technology, research, education, or social enterprise, there are plenty of grant opportunities you can pursue that will more closely align with grantmakers’ objectives.
Bootstrap
We’ve all heard the phrase “stand up for yourself” in some form or another. It’s an ancient and revered idea that self-reliance and hard work lead to success.
Bootstrapping is a similar concept for startups: with intelligence and determination, you can create value from limited funding. Creative founders shine when they can find non-capital-intensive solutions to significant problems.
This is a common practice among young entrepreneurs who don’t have much experience running a business. They may take some time to adapt to the learning curve, but they are used to working without capital or a salary.
Freedom from investors is the biggest reason why many entrepreneurs don’t seek investment funding. The entrepreneur has the final say and doesn’t have to share ownership with anyone else. This also allows the entrepreneur to grow the business at their own pace. With no one to hold them accountable for financial reporting, they don’t feel the pressure of meeting investor expectations due to the rapid pace of expansion.
Of course, this requires intense monitoring of costs and expenses, which often creates stress in terms of finances and where to cut in order to remain solvent. Limiting financial resources and how they are allocated reduces the potential for growth and the ability to generate revenue.
Founders also take on a lot of risk because they’re usually backing their businesses with their own money: They don’t have to guarantee that investors or other intermediaries will be paid if the company goes bust, but they’re betting on their financial stability if things go wrong.
Timings to consider: If time is not of the essence, this option may be viable – you can accomplish something similar without capital, but it may take much longer to get there.
Related: The Complete 10-Step Guide to Bootstrapping for Entrepreneurs
Investment capital is in demand, but not in demand.
Whether you pursue traditional venture capital funding or these alternatives, there’s no guarantee you’ll have the cash you need to build your business. In a market brimming with new ideas and eager entrepreneurs, demand vastly outstrips supply.
Still, with the right care, effort, and a bit of luck, these options could be useful.