Monthly Archives: August 2016

Kickstarter Alternatives

Obtaining financing is one of the biggest hurdles most entrepreneurs will have to overcome. If a bank loan won’t cover what you need and you don’t have any connections to investors, it can be tough to know where to begin. Online crowdfunding — raising smaller amounts of money from multiple backers — has become an increasingly common solution to this dilemma because it allows startups to reach out to a large number of potential investors at once.

Although Kickstarter and Indiegogo are two of the most popular crowdfunding platforms, success there isn’t always guaranteed: For every project that meets its goal, there are dozens that just didn’t pick up enough steam to get funded. So, where else can you turn?

Whether you’re looking for a small investment to jump-start your company or a large round of capital to grow it to the next stage, here are 10 sites that can help you raise the money you need.

AngelList

This site brands itself as a platform for startups to be matched with potential investors. AngelListhas a network of investors called syndicates, who cover all setup costs and carried interest so that startups pay nothing to raise funds. Any startup incorporated in the United States or the United Kingdom can apply for funding by creating an AngelList profile, but syndicates typically look for companies with a credible founding team, demonstrable postlaunch traction or a reputable offline investor already involved with the company.

CircleUp

CircleUp operates under the belief that entrepreneurs should be able to raise money based on their business’s merit, not on who they know. This site offers consumer product and retail startups access to a community of high-quality investors who can help them raise funds ranging from $100,000 to upward of $10 million. Though CircleUp typically requires crowdfunding companies to have around $500,000 minimum in revenue, it will consider exceptional earlier-stage companies for its Seeds program. There are no listing or introduction fees, and you are charged only when you achieve your fundraising goal.

Crowdfunder

Crowdfunder is an equity crowdfunding platform that makes it easy for businesses to raise capital from its network of accredited investors. The site allows startups to raise money through equity, debt, convertible notes or revenue share, and to choose if their deal is private or public. Instead of taking a percentage of the funds raised, Crowdfunder sets a flat monthly fee (starting at $299) for entrepreneurs to use its capital.

EquityNet

Startups interested in equity investors can sign up for EquityNet, a business crowdfunding platform that allows entrepreneurs to share their profiles and business plans with a network of more than 20,000 angel investors, venture capitalists and business supporters. EquityNet’s patented business plan and analysis software help you optimize your planning and reach the investors who would be most interested in your project.

Fundable

Created by a team of startup founders who understand the challenges of raising capital, Fundable allows entrepreneurs to raise money from investors, customers and friends. Companies seeking funds can create a profile on the site, set their goals and rewards, and promote their campaign. Fundable offers companies the opportunity to provide reward-based fundraising and equity fundraising. Reward fundraising allows companies to offer rewards from companies seeking less than $50,000 and allows investors to donate any amount. Equity fundraising, on the other hand, is for companies looking to raise a larger amount of money, and requires a minimum commitment of $1,000 from backers.

Tips for Self Funding a Startup

Funding is one of the biggest challenges most entrepreneurs face. Whether they take out loans, crowdfund or accept investments, startup founders often find that they need some kind of outside financing to make their business dreams a reality.

But some entrepreneurs choose to self-fund their operations, investing their own money into the business. This is known as bootstrapping, and if you have the resources to do it, you will benefit from complete financial and creative control over your business. There are no equity stakeholders demanding that you move in a certain direction, or lenders looking for their loan payments each month.

The downside, of course, is that your business budget is dictated by your own personal finances. Bootstrappers are on the hook for every last cent invested in the business, and without the right financial-management skills, you could end up driving yourself into serious debt.

Any financing path comes with pros and cons, and bootstrapping is no exception. It’s true that this method will put severe constraints on your budget and increase your personal liability, but there are also plenty of advantages to self-funding. Our expert sources weighed in on why bootstrapping might be a good idea for you:

“Bootstrapping allows an entrepreneur to have complete control over your business without sharing ownership with outside investors. You can manage the pace and iterations of your product, marketing and sales efforts, whereas outside investors may push you to pursue revenue before your product is ready to go to market.” – Bob Johnston, CEO of SponsorHub, a sports and entertainment analytics company

“A bootstrapping founder can prove value without having to give up equityfor expensive money. You give yourself the shot of actually driving revenues and greatly increasing your valuation before funding, and maybe never taking money, which would be the best thing a business can do.” – Andrew Heckler, CEO of content marketing and native advertising tech companyHone

“You don’t need anyone’s approval (except yours and your partners’) to spend your money in support of a certain direction or initiative. You’re not subject to the whims and influences of investors who pop in and out of your business without the day-to-day knowledge you’ve got as the leader. You’ve got the freedom to add people to your team as the cash flow can support it, which means you don’t over-hire and then have to let people go.” – Bryan Miles, CEO and co-founder of business process outsourcing company Miles Advisory Group

“Bootstrapping allows you to focus on the essentials. Having a massive sum of money and investors demanding that it be spent can lead to waste. When bootstrapping, you learn to be more analytical in terms of what you spend money on. Learning this skill is crucial to any entrepreneur.” – Endri Tolka, co-founder and COO of YouVisit, a company that provides virtual tours and virtual-reality solutions

“Bootstrapping forces creativity. It drives you to work efficiently and intelligently in order to maximize profits and fund future growth, and to manage that growth carefully.” – Mark Buff, CEO and founder ofHDTV antenna maker Mohu

How to Fund Your Startup

There are a lot of different ways to finance a startup. You could save up your own money and bootstrap the business. You could borrow money from family and friends. You could even invest some funds from your 401(k) account. But for many businesses, the choice comes down to taking out a loan or raising investor capital.

The financial path you choose will affect how you run your business in some way, so you should not make this decision lightly. Borrowing and fundraising both have their pros and cons, and the best option for you depends heavily on the type of business you run and what you need the money for.

Finance and business experts shared the advantages and disadvantages of loans versus fundraising, and weighed in how to make the right choice for your business.

A loan is one of the most cost-effective ways to fund your business, said Jay DesMarteau, head of small business banking at TD Bank. If you obtain your loan through a bank or SBA (Small Business Administration) lender, you’ll usually have a lower interest rate than on a personal loan. You may even enjoy some tax benefits. Taking out a loan also gives you the opportunity to build up your business’s credit score as you repay the loan.

DesMarteau noted that the biggest advantage of a loan is retaining full ownership of your company, which won’t happen if you take on investors (more information on that below).

Cons

If you’re looking to get a traditional bank or SBA loan, the application process is very lengthy, said Jay Chang, co-founder of the personal growth and leadership resource, Achieve Iconic. You’ll also need to satisfy a long list of prerequisites, which often includes being an established business, rather than a new venture. Chang noted that loans also mean you risk losing collateral if you can’t pay off the loan.

Although alternative lenders often have much quicker approval and funding processes, they also typically charge high interest rates for that convenience. Evan Singer, general manager of SBA loan provider SmartBiz, warned business owners that while “fast financing” offers may help in a pinch, they may not be a good longer-term strategy due to the higher rates.

In some cases, both traditional and alternative lenders will put restrictions on what you can use your loan for.