Funding Your Startup: Old School vs. New School
At the beginning of 2016, we discussed ignoring your neighbor, whose friend may or may not be a venture capitalist. Ignoring that neighbor is a great idea while you’re working on your startup. Your innovative idea belongs to you, your cofounder, and the network you’ve chosen to help you build it – not everyone who hears about it.
What happens, then, when it’s time to start raising funds? Then it might be time to talk to that VC after all. Or might it?
Today, there are practically as many means of funding a startup as there are startups. What type of funding methods you choose can be dictated by the type of startup you’re creating.
Go Old School
If you’re building a more traditional startup, you might want to think old school – that is, you may want to rely on more traditional methods of funding. Just as networking is a great way to find people to help you create your startup or grow your idea, networking can also help you with funding.
One of the most old-school ways of funding a business is through venture capital (VC). If you read this and think “angel investors,” hold on – we’ll come to the latter. Venture capitalists and angel investors are not the same thing. VC investors are a great target if your business idea needs time and lots of capital.
VC rounds will help you not only build funds, but they will also help you with the structure of your business. Most VC contracts include clauses that allow the VC to sit on the board of the businesses in which they invest. In other words, you have to have a board if you raise VC rounds.
This is great if you know your organization is going to need this kind of structure. It will also work if your idea will also take time. Products that can quickly be brought to market, like a new tech accessory, don’t necessarily need time. In that case, look to another old-school method: cold pitching. You can do this in person or even over email. It’s one of a number of keys to successful fundraising for startups. It does, however, take time, as you shouldn’t just template your pitch and spam everyone in your LinkedIn network. That will only hurt you in the long run.
Go New School
If you and your startup team are rolling out something a little more avant-garde than the newest brokerage firm, you might think about seeking funding in less traditional manners. Remember those angel investors? You could start there.
Angel investors differ from VCs in that they typically don’t spell out a host of requirements for startups to earn funds. Angels are highly wealthy individuals who have most likely retired from a niche but wish to keep their hands and skills in that niche.
While they are typically more lenient with their investing requirements, that doesn’t give you a free pass to be willy-nilly with the model you bring to them. They are still the ones with the deep pockets who are going to fund your early-stage startup. Making sure you have your ducks in a row is the best way to get pieces of their pies.
Startup in the early stages of development? Apply to an accelerator or incubator for more than just funding opportunities.
Accelerators start with highly-selective application processes and seed investments. You and your team are then given a fixed time period in which to develop your product. A substantial mentor network is available via the accelerator. This network is great leverage for both business contacts and future investors.
Incubators look after you if you’re still in the early stages of your development. As the name suggests, they incubate businesses in infancy, providing niche support for projects and limited resources. Accelerators often provide individual real estate for development teams, while incubators toss teams together in large spaces.
Once your product is in prototype, you can look at one of the most modern of all funding methods there is: crowdfunding. In a twist of fate, crowdfunding sites like Kickstarter and Indiegogo were someone else’s startup once. Now they are helping entrepreneurs do more than just raise money for their wares.
Not only do crowdfunding sites give you an opportunity to raise funds, but they also offer you a marketing platform and yet another network. This is another funding method where it will truly pay to be prepared. Just as your business plan must be in place to solicit an angel, your product must be developed enough to show the public what you’re going to do with it and what they can do with it.
Find Your Own Combo
One method will not fit each startup. The beauty of these differing methods is that they will help your startup at varying stages of its development.
Digging a little deeper into each of these may help you decide which combination will work best for your startup. After all, your startup is unique. Its funding should be too.
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