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The journey to success with a startup doesn’t happen alone. If we hope to succeed, we need the help and collaboration of co-founders and employees, the cooperation of partners and vendors, and the support of our families. Even as the head of a company and the sole decision-maker, you’re more reliant on the decisions of others than you might realize — the decisions of all the people who choose to join you and support you on your mission to build a business from the ground up.
The question of fund-raising is another one of partnership and cooperation and is perhaps the most important matter to tackle along the startup path. A business can’t run on big ambitions and positive vibes, and it can be a challenge for ventures to generate enough revenue out of the gate to be self-sustaining and to fund growth. Founders are therefore left to ask themselves if they want to look outside the company for funds, and ponder what type of fundraising is best for their needs.
While fundraising might seem like a no-brainer for many, the decision isn’t necessarily so easy for all founders. The money on offer isn’t free, and accepting funding means giving up some measure of equity or control of the company that you created, and adjusting vision and direction. While some entrepreneurs don’t have an issue with ceding some control in exchange for the resources to accomplish their goals, others would rather maintain their control and autonomy, even if it means a more difficult path in the short term.
Should you choose to go the route of fundraising, your options on investment can vary depending on what you’re looking for and what you’re willing to agree to. One option for many, particularly in the seed round stage of your fundraising, is angel investors. Angel investors can be a more informal option than other choices, as they operate at their own discretion. There is also more flexibility within the angel investing community as a whole as to what is expected in return for their investment and it can be a good option for those looking for smaller dollar amounts.
Another option for seed money is investment from friends and family, although this choice comes fraught with potential problems. Even if you formalize the arrangement with all of the necessary paperwork and contracts (which you should absolutely do), there is still the chance of souring personal relationships should your business prospects go awry. Everyone who invests should know the risks, but knowing and actually losing the money invested are different things entirely; be cautious when considering your personal network for funding.
Banks are one tried-and-true option for raising funds for your business. Taking out loans and accumulating debt might seem less than ideal (particularly if you’re on your third mortgage), but it’s a way to fund the growth of an enterprise that you ultimately believe will be successful and a way to avoid having to give up control in your company, although you will likely have to borrow against collateral or accounts receivable in order to secure the loan.
Perhaps the funding option most associated in popular culture with startups is venture capital. VC firms are often the place for more established startups to obtain funding, as most firms are looking for surer bets with less risk and a more established track record – think customers, although there are VCs that specialize in earlier-stage funding as well. Founders can go into a VC expecting to get a bigger investment, but they should know that they will have to give up more in the way of equity and control and input into some of the decision-making; they’re getting a partner as much as an investor.
The most recent addition to the fundraising picture is the rise of crowdfunding and initial coin offerings (ICOs). While differing in execution, both offer the average person in front of their computer the opportunity to invest a small amount in a project, with the offer of a reward upon its completion. The ICO side in particular is far more complex, with professional investors involved and a raft of rules and regulations coming down from the SEC, but both stand as new alternatives for those looking to avoid traditional fundraising.
Fundraising isn’t a decision to be taken lightly, nor should it be taken as a given, either as the only way to grow your business or as a fait accompli once you start meeting with investors. It takes a lot of work and a lot of time, and the process can be frustrating. But as with most things in our business, we put the time in because we care, and because we know our efforts are going to further a cause that we deeply believe in: our company. #onwards.
June 11, 2019 at 08:51AM
Forbes – Entrepreneurs