Like most of us, start-ups always need more money. Whether that’s to invest back into the business to build its internal structures or to create brand awareness through advertising and marketing, start-ups tend to have a tough time making enough money to finance these ventures. So what’s out there for new companies? I went to two interesting workshops hosted by USE last week to find out a bit more of what was on offer to the fledgling start-ups of this world.
Yeah you guessed it. Probably the first type of funding to come to mind for most entrepreneurs; an investor. Whether that be an Angel or a Venture Capitalist, most entrepreneurs see this type of funding as the holy grail. No need to match fund or even put up any funding in some cases. Yes you have to sign over a big chunk of your company and basically sign your life away until it makes tons of money but hey that’s why most of us get into business right? Well, no… What I learnt from this talk is that the likelihood of your application ever been seen by the decision maker is quite low as, although they might only invest in one or two ventures a year, they get masses of applications and unless you are the next Facebook, you’re not likely to get a look in. And because they invest millions in one or two projects, think Facebook and Google, it can take a lot of time and commitment to make a VC application; the average time is 9 months or 42 weeks to be precise and still you may walk away at the end of it with nothing. Not only that but the likelyhood of getting VC funding if yours is a case of “me,myself and I” is pretty slim. VCs like teams and if you’re not in a team, well you best find one pretty quickly.
For those not in the know, as I was last week, crowdfunding platforms enable the general public to pay you money to get your business to the next stage in return for “perks”. Now this could be products, earlybird membership/use or just the warm fuzzy feeling of doing a good deed for the day, these early adopters of your product or service are basically validating your idea and letting you know how good it is. The more money you raise, the more you know you’re onto something. It also works the other way though and could mean your idea is a lead balloon. Not only that, you need to be close to production or are expanding your business as “funders” are basically pre-ordering your products and therefore expect to have it in the near future. On the plus side it means you get access to a whole new world of potential customers and by that I mean email address as well as potentially accessing some much needed upfront capital. Depending on your view, the downside can be that your product could reach the sandy beaches of Sydney or the depths of the Amazonian rainforest -in other words, you can’t pick a geographical location such as the UK so you’ll have to factor in international expansion at an early stage.
Or you could go old school. Depending on your idea, bootstrapping can be great way to set up a business. You have no debts, no one telling you what to do and can take the business forward how you see fit. It also works quite well if you don’t have large set-up costs or there is a standard business model to follow. For example, being a social media consultant, you would obviously need internet access and funding for flyers to take to businesses and a phone to call them to arrange meetings (First Steps Funding from USE would be perfect) or the tried and tested business model of running a coffee shop. You’re also more likely to be able to secure traditional forms of funding for ideas that are proven to work.
So will I be using any of these forms of funding? Most definitely. Although I can see the reason why VCs take such large chunks of your business (They’re investing in risky ventures that are unfortunately probably going to fail in the search for that nugget of gold like Facebook) but for me, I wouldn’t feel comfortable in giving away such a large slice of my business and being told what I had to do in order to receive it, especially if it went against everything I had wanted the brand to be. Bootstrapping has been really valuable to me and meant the business has cost significantly less to set up than its competitors. And I’ll definitely be doing some more research into crowdfunding, so watch this space.