For startups and innovators with big ideas, one of the biggest challenges and most important parts of growing into a business is getting some funding. Having a beautiful, impactful and promising idea is great but without some money to get underway, the journey will be somewhat limited.
While there is a lot of talk around venture capital and VC investment, most new companies don’t actually raise VC funding, instead, looking for alternative ways to grow. Getting VC funding isn’t easy at the best times and is even more difficult in the current economic climate as investors tighten the purse strings and become a bit more hesitant. At the same time, it’s important to note that VC funding involves giving up a degree of equity and control – which many founders don’t like to do.
Raising VC also isn’t the mark of a successful startup and there is a debate to be had over how important it is for a company’s journey. There are so many other factors at play to consider. What’s more, the VC space has gotten plenty of criticism for a lack of diversity and decision bias.
So, what other options are there?
Where there is a will there’s a way, and there is no one set path that each startup must take. Here we look at some of the alternative ways to get funding – including finding an angel, getting grants, crowdfunding and more. Read on to find out:
Crowdfunding
One of the most exciting and community-based approaches to funding is crowdfunding. It involves letting regular people invest small amounts of money into your venture, creating a community shareholding. Crowdfunding campaigns can be thrilling to watch and be part of, and aside from raising money can help build a community attachment around the brand.
There are several platforms operating in Europe enabling crowdfunding, such as Indiegogo, Kickstarter, Seedrs and Crowdcube. Seedrs and Crowdcube deal with equity, Indiegogo and Kickstarter raise money for a reward.
Heura, the food tech innovators from Barcelona, ran a super exciting crowdfunding campaign earlier this year when it raised over €4 million in just 12 hours. The campaign launched on Crowdcube saw 4,500 investors from across Europe join the Good Rebel community.
Bootstrapping
Bootstrapping is essentially what the name suggests – it’s putting on those business boots and going for gold all on your own. It’s an increasingly popular way to get started with startups like Typeform, Sumup and Hotjar providing some inspiration on how it’s done (these companies have since raised VC, but got off the ground with bootstrapping). Mailchimp is another example of a company that made it big bootstrapping before their exit.
The central idea behind bootstrapping in business strategy is to borrow minimal funds or no capital at all. Bootstrapping is considered to be very effective because interest costs are kept to a minimum, since the company borrows very little capital – if ever borrowed. Aside from using their own resources, many founders also reach out to friends and family for money. While this all means your heart very much has to be in the business, it can get a little stressful. Founders, friends and families give their own money to the startup in exchange for some interest or some participation in the startup equity.
Bootstrapping is pretty popular in Europe – find here 10 success stories for some inspiration.
Grants
There are so many grants available out there – so many it can be hard to even know where to begin and you may miss out on some opportunities if you’re not on the ball. Governments give out grants, the EU has grants, private organizations and foundations too, and so do universities.
One example is the SBIR (Small Business Innovation Research grant.
Getting a grant generally requires filling out an application, explaining why you deserve the grant, what you aim to achieve, and what makes your idea that special.
Some countries have more grants than over, and some focus on specific industries – biotech and space industries are two areas that governments tend to buy into.
On a European level, greentech is the talk of the town and many of today’s fastest-growing greentech and sustainability-oriented startups are funded by the EU and EU-associated projects (like EIT Food, EIT Health and so on). For example, the Brussels-based fashion tech startup Resortecs was selected to receive a grant worth €2.5 million from the EIC Accelerator. Founded in 2017, the startup enables industrial-scale recycling in fashion thanks to high-quality, automated garment disassembly. Another example is the carbon-emission reducing startup SecondCircle.
Angel Investors
Angel investors help give startups their first wings with seed capital. They can be individual or operating as part of an Angel Network – such as EBAN – which also organizes investor events and networks. Getting involved with angels in this way can be a great way to make connections that can help you find even more investors, potential co-workers and potential clients.
You can check out our report to find the most prominent business angels in Europe here.
Small business loans
Lastly, there is also the option of getting a small business loan. Most banks have some form of offering for small businesses and startups and they have the cash ready to go, so you pitch your business idea where the money is.
You generally need a solid background and credit rating to get a bank loan, but if you do, the benefit is that you’re still in charge and not a large VC farm. The loan will have to be paid back eventually, so make sure you’ve double-checked all those T&C’s.
Choose what works for you
There are many different ways of getting funding, and what works for one startup might not work for another. Do your research, be clear on your goals, and investigate the different options before deciding on what’s best for you. You can also check out this article and this one to check out the pro’s and con’s of alternative financing as opposed to VC investments.
Note: This article was written with the participation of Patricia Allen and Alexandra Amsberg.
via https://www.AiUpNow.com
September 16, 2022 at 10:22AM by contact@bcurdy.com (Alexandra Amsberg), Khareem Sudlow
