6 of the Most Popular, Non-Traditional Ways to Fund Your Startup

Business.com / Funding / Last Modified: February 22, 2017

Skip the traditional funding route and find out how startup companies are financing their businesses.

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Are you seeking funds to help fuel your startup’s growth? While there are numerous traditional ways of funding your startup, such as venture capital, private equity and small business bank loans, you shouldn’t feel limited to those choices. Venture capital and private equity firms, especially, can be a minefield to work with. Grueling due diligence, six-month or longer vetting processes and giving up a major percentage of your company are just a few reasons many entrepreneurs have embraced alternative methods of funding. Be sure to assess the following six options as you consider your fundraising strategy.

Crowdfunding

Crowdfunding, by gathering donations using online platforms such as Kickstarter and IndieGoGo, has taken off. Crowdfunding is especially desirable for startups with a large, grassroots social media presence. These startups are able to use their built-in fan base to ignite passion and support—in the form of easy donations. There’s no need to deal with banks; you can launch a campaign fast (within a day’s time if you really want to!) and you maintain total control. It’s a cheap and fast way to get it done. Many startups simply try crowdfunding as a test, since it’s a low-risk option. If you feel like your startup is filling a void that could appeal to the masses and you are raising small amounts of cash, then crowdfunding may be a viable path. Success rates range from 9%-20% with goals typically less than $10,000. 

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Grow Your Founding Team

Growing your team of founders is another way of generating cash in a practical way. Rather than hire contractors and freelancers, which may quickly rack up expenses, your other option is to strategically add one or more founding members. Why founding members versus hiring employees for sweat equity? Founding members have a stake in the company from an equity and passion perspective. And, hopefully they have the budgetary bandwidth to add cash to your initial bootstrapping pot. You cut out the hassle of outside investors. The crucial part is making sure you recruit and onboard the right partners.

Use Retirement Funds

Some startup founders are turning to their personal IRAs or 401K retirement plans to fund their startup. If the idea of investing your retirement savings into your startup makes you gasp, then this strategy may not be your fit. But, for founders who are die-hard believers in their product or service, and are willing to invest the time to set up the transfer the right way, this is a viable option. If you go this route be sure to use an experienced financial advisor, someone who can guide you in the proper way to set up the rollover. Otherwise, you may be setting yourself up for pricy penalties and expensive regrets.

Credit Cards

Credit cards are a no-brainer funding method. Fast access, coupled with rewards systems and the potential to increase your credit ratings, have made credit cards an appealing option. Plus, credit cards offer straightforward expense tracking capability and ease of use. The downside, of course, is many credit card companies limit  the funds available for cash advances so oftentimes borrowers are not getting the funding they need.  . If you choose credit cards to fund your startup, avoid damaging your personal finances by having a clear on how you’re going to use the funds and how you’ll managing paying it off.

Angel Investors

Angel investors come in several forms: friends and family, individuals, and networks. These tend to be wealthy individuals who have a passion for your startup’s industry. Unlike big venture capital groups, many angel investors act on their own, making investments in sizes ranging from $10K to a $1 million. Angel investors tend to offer far more than just cash; they tend to come with industry experience and a broad network, adding more value to the deal. Angel investment networks are a way for startups to raise more money than a one-off round would provide. Should you go the route of an angel investor, be sure to have a solid plan in place for how you’ll spend the money, what your go-to-market plan is. There are downsides to angel investments including investors requesting equity as well as the headaches that come with doing business with family and friends.

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