There’s a lot involved in launching a new startup, from brainstorming to planning to research. But then, after so many coffee-fueled ideas are bounced around and fleshed out, you realize you need to get down to the not-so-fun (but necessary) business of figuring out how to fund your new venture.
For early-stage startups, sourcing funding can be tricky. You don’t yet have the track record that many types of investors are looking for, and you may not yet need (or want) the large amount that others invest as a minimum. You may not have the connections needed to get funding from angel investors, who can be difficult to land an introduction to since their attention is so in-demand.
If your funding exploration to date has left you scratching your head, consider these three often overlooked funding sources.
Bartering has been a relied-upon method of conducting business since the beginning of human development. And for good reason: it works to get everyone’s needs met. If you have something that vendors and suppliers want, you can take advantage of bartering.
What can your business barter for? The possibilities are endless, but commonly-bartered goods and services include marketing and PR, photography, printed materials, bookkeeping and accounting, and even legal advice.
If you aren’t producing something that vendors and suppliers need, consider bartering a percentage of ownership. Tread carefully here, however, since these individuals and entities won’t be able to offer the experienced guidance and type of support you need from your investors long-term.
Why use it: Bartering conserves cash. Since one of the primary reasons new startups fail is cash flow problems, bartering could be your ticket to making your cash last long enough to get your business safely off the ground. Additionally, you give yourself a competitive advantage since your supply chain costs are optimized.
What to be wary of: As mentioned, if you’re trading a percentage of ownership, you’re giving power to people who may not have the level of experience you need. Also, you need a contingency plan and a clear legal agreement on what would happen if the supplier or vendor went out of business.
Investors are, of course, motivated by the money they’ll make from their investment. Their biggest fear is losing the money they lend. You can ease their fears by offering a partial-payback schedule of payments tied to revenue milestones.
For example, if someone invests $100,000 into your business, you could offer to pay out $10,000 after you reach your first $100,000 in revenue, then $10,000 when you hit your next $100,000 in revenue, and so on. The schedule and associated amounts are up to you and your investor.
Why use it: Upfront cash. Investors are much more likely to agree to this type of arrangement since their risk is reduced and they receive a series of payments over time.
What to be wary of: There’s a reason that most investments aren’t required to be paid quickly. Most startups need access to all of the cash they raise for a longer time period. If you find that you miscalculated, you may find yourself short.
Syndicate funding is growing in popularity, which makes it a more viable option than it was in the past. With a syndicate group, an angel investor leads a group of inexperienced investors who together invest in various ventures. Examples include AngelList and Startupxplore.
Why use it: You gain access to a group of investors without having to navigate and manage several different deals, while at the same time benefiting from a diversity of perspectives and backgrounds. You also benefit by having the input of an experienced angel.
What to be wary of: The diversity of perspectives has its downside, including diversity of opinions, which may be strong. If you don’t see eye-to-eye, this could create headaches for you.
While these funding sources may not be as ideal as more mainstream options, you might just be able to fund your business by using one of them. The key to deciding which type of funding to pursue is to consider your team’s unique strengths and weaknesses, and to look for compatibility in the pros and cons of each funding type.