FUND YOUR STARTUP – 10 EARLY STAGE METHODS

FUND YOUR STARTUP – 10 EARLY STAGE METHODS

❏ I’m speaking on Fund Your Startup: 10 Early Stage Methods (Link) today. Funding is one of your first challenges if you are starting a new company. Choose the wrong path, and you could weaken your company. If you want to be on the right track, you can retain majority control of your company. Does this sound like something you would benefit from understanding? Let’s get started!

As an executive coach, I provide founders with the right kind of help at the right time. Recently, I taught you Startup Name – 10 Name Your Startup Steps (link).

This week, I’ll show you how to fund your startup. Ten early-stage methods (Link). You often need money when you’ve just flushed out your idea or finished your MVP. I get asked this question more often than almost any other subject. Ready to find the answers? Let’s get started!

Method 1: Personal Funds

The vast majority of founders will get their company started using personal funds. If you’re unwilling to spend your money on your idea, why should anyone else? I recommend saving 6–12 months of “personal nut” money before you go full-time on your startup. What is a “personal nut”? It’s the amount you pay out each month for essentials. Your monthly income includes rent or mortgage, electricity, water, sewerage, automobiles, and food. So if your “personal nut” is $2000/month, save up $12K to $24K. Work “after-hours” on your side gig until then.

Method 2: Bank Loan & Lines of Credit

After personal funds, bank loans and lines of credit are often your next choice. You can choose from several forms. If you have equity in a home or land, you can usually get an equity line of credit set up. Be careful, and only borrow what you are willing to lose. You can also borrow against your line of credit on your bank cards. Bank loans and lines of credit are costly, so think twice before you take this route.

Method 3: Trade Equity for Services

Trading equity for services is an often overlooked option.  Trading equity for services may be done in conjunction with other funding methods. Many times, accounting firms, law firms, and others will take a chance on an entrepreneur. Firms may give you 6-month payment terms. Others may provide a certain number of work hours for free or at a deep discount. Others may offer significant work in return for equity or a convertible note. Explore all these opportunities before you start writing checks to vendors, even if you have the money to pay them.

Step 4: Grants

One of the most overlooked sources of startup funding is grants. There are billions of dollars in grants that are given away every year. Many endowments require a qualified person to apply. Many grants can take a fair amount of effort to find. However, often, the value of getting money goes well beyond just getting the cash. Contacts and network exposure can often be just as valuable, if not more so. You don’t have to be a non-profit to get a grant. Many of these grants are available to for-profit companies as well.

Method 5: Crowd Funding

Crowdfunding is a relatively recent phenomenon. Companies such as KickStart and GoFundMe are two examples. Hardware companies have been using Kickstarter and similar crowdfunding ventures with great success. Crowdfunding comes with its own set of challenges. But if your idea has a significant hardware component, you should consider it. It’s also a great way to validate your company with potential customers. Many campaigns are “oversubscribed,” sometimes by 2–10 times the amount the company requested. This crowdfunding success can make raising additional funds from angel investors more likely and less costly.

Method 6: Incubators & Accelerators

Incubators and accelerators have been a staple of startup life in Silicon Valley for over ten years. Many of these outfits provide startup funding to the companies they invite to join, $100K or more. These monies are in the form of a priced round in return for ~6% ownership. Some incubators and accelerators don’t give you any money when they invite you to join. They may charge you a small monthly fee. Incubators and accelerators provide access to mentors, coaches, desks, and the Internet. I recommend non-equity incubators and accelerators. They bring more value to the founders. Full disclaimer. I contract for Tampa Bay Wave.org, Tampa, Florida’s premier high-technology accelerator.

Method 7: Customers

Getting your company funding from your customers is the number one method of startup funding I recommend. As an angel investor, I am more likely to invest in a company with customers. Even if your minimum viable product only has 50% of its features, I’m more likely to invest in your company! I’ve worked with software-as-a-service (SaaS) startups with 100% funding via customers’ early product adoptions. It works and builds very loyal and happy customers.

Method 8: Friends & Family (Gifts, Convertible Notes)

Now, I’ll talk about a startup funding method you must consider carefully before using. After using your funds and taking out loans, friends and family funding is often the next choice. You should think carefully before using this funding method. I say this because our friends and family are people we value above others. They are also often the most giving. However, your relationship will likely always differ if you accept their money and lose it all. Since most startups fail, I advise against friends and family funding.

Method 9: Angels (Convertible Notes, SAFE & Equity)

Angel funding is the preferred method (after personal funds) for getting your company early-stage startup funding. Most angel investors are high-net-worth individuals. However, there are also family funds that do angel investing. Angels usually invest using convertible notes, SAFE (another type of note), or equity purchases.

Method 10: Seed / Venture Funds (Equity)

The last method, seed funding, is less common pre-MVP (minimum viable product). A seed fund shares much in common with a venture fund but with fewer dollars. Seed fund sizes are typically $10 million to $50 million. Investments in companies usually start as low as $25K and can go as high as $2.5M. Seed funds may have only a single limited partner, but typically, they will have 5–25 limited partners. Seed funds most often do equity investing. However, small investments may be made in either convertible or safe notes. More significantly, later rounds are typically priced as equity rounds.

Fund Your Startup – Conclusion

I hope I have educated you on how to Fund Your Startup – 10 Early Stage Methods (link). Keeping the company funded is the number-one job of the CEO. I hope this article has helped you better understand your fundraising options.