Coming up with an ingenious business idea is great, but having the money to fund it is even better. With enough cash, you know you have a fighting chance to make your entrepreneurial dreams come true. But when everyone’s trimming their budgets and hesitating to invest in riskier ventures, startup founders must pull out all the stops. They’ve got to get creative about how they fund their visions.
No, this doesn’t mean resorting to desperate measures or borderline questionable techniques. Using innovative ways to secure funding in a tight economy means seeking financial support beyond the traditional sources, such as bank loans. We’ll look at five of these methods below.
1. Industry Grants
When you think of grants, your first associations might be of scientific research or nonprofit organizations. Yet in terms of startup funding sources, there are grants out there for the taking directed at specific, niche-oriented applicants. Some of this funding goes toward small businesses operating in certain industries, such as tech. Other grants accept applications from founders who come from certain backgrounds and demographics.
Women entrepreneurs are an example. They typically face more challenges securing funding for their startups. Data shows female founders received only 1.9% of venture capital in 2022, a drop from the previous year. Grants aimed at supporting startups led by women attempt to help overcome the funding gap. These sources of capital can distribute monthly and yearly awards to different applicants.
Not surprisingly, monthly awards are usually smaller, while annual awards fund a larger percentage of a startup’s initial costs. Either way, grants reduce the monetary barriers entrepreneurs typically face. While applying for grants is competitive — sometimes extremely so — it’s money you don’t have to pay back. The U.S. Small Business Administration, state or municipal entities, and private organizations are all potential providers of grant funding. So investigate as many likely grant sources as you can and read the fine print to see whether you qualify.
2. Digital Crowdfunding
For budding entrepreneurs, online crowdfunding sites can serve multiple purposes. Sure, your main goal is to raise enough money to get your business started. But you can also use these platforms to do a test run of your idea and gather feedback. Crowdfunding sites let you interact with people drawn to your product and brand story. Why not use these connections to refine your concepts before you launch them to the world?
In 2023, the crowdfunding market is projected to reach a transaction value of $1.14 billion. Furthermore, that market is estimated to grow 2.11% annually from 2023 to 2027. Therefore, the opportunity to raise startup capital through crowdfunding sites stands to increase. It’s a way to network without physically working room after room. With one site, you can reach potential investors near and far.
Another appeal of crowdfunding sites is that supporters of your startup don’t have to fork over large amounts of cash. Crowdfunding platforms let people of various financial means contribute according to their budgets. Each contribution might be smaller than you would get from an angel investor, but those amounts can add up. In addition, you needn’t give crowdfunding investors an equity stake in your business, meaning you retain greater control. With a compelling online story, your idea has a fighting chance to take off.
3. Prepaid Offerings
Objections you’ll come across in your quest to secure funding are often tied to investors’ perceived risks. They may not think your business idea will come to fruition. Or perhaps they’re not convinced they’ll gain something in return. While the rare individual may happily hand over money to support a startup without any expectations, this is far from the norm. Most financial backers want to go down a two-way street.
This is why raising money through prepaid products and services can work. In exchange for their financial support, investors are essentially purchasing what a future business will sell. Those offerings become an incentive for people to invest, whether large or small.
Associating prepaid products and services with financial contributions can also be a promotional tool. You can share the news of your startup’s upcoming launch online and at local small business events. As long as you keep track of what you’ve promised to whom, you can follow up with your initial customer base. Once your business launches, you can schedule the services or deliver the products.
4. Startup Contests
Also known as pitching competitions, startup contests are a way to rise to the top of the funding food chain. You enter and present your business idea to judges and the panel decides who wins the contest and the capital to launch.
As in a televised singing competition, you will be going up against your peers. A contest can be an additional way to test the waters with your product idea. At the same time, you’ll want to make sure you have an airtight pitch. Take these contests as seriously as you would presenting in front of a boardroom of venture capitalists. Often, the same kinds of people oversee and judge these competitions.
A second aspect to consider is the entry guidelines. Some contests are for founders who have yet to secure specific amounts of funding. Other competitions are associated with networking programs and narrowly defined industries. To qualify, you may also need an idea for a particular class of product. Solutions built on cutting-edge technology are examples.
5. Peer Lending
Bootstrapping is a common way for founders to finance their businesses. With bootstrapping, small business owners use their savings and other financial investments. This technique can work for entrepreneurs who have enough in the bank. But those who don’t must convince others to help them.
Winning over a bank’s loan officer can be difficult for entrepreneurs. If your business idea is too ground-breaking, it’s a risk banks may not be willing to bet on. Nonetheless, your peers might. You could find it easier to persuade business owners who’ve been in your shoes to give you a loan.
Peer-to-peer lending represents funds you can secure through networking events and online platforms. You’re not necessarily going to hit up your former university classmates and extended family members, but you can. If you think they’ll understand your startup’s potential, these individuals could be a willing audience. If not, online peer-to-peer lending sites expand your network of possible investors who will listen to your pitch and may extend a loan.
The SuN Takeaway
Money for new businesses is hard to come by in an economy where lenders and venture capitalists are more risk-averse. People with the means to invest are less willing to bet on the unknown. As the competition gets stiffer, the pitches have to get stronger. Still, there are ways to get the capital you need to fund your startup. You just need to be ready to roll up your sleeves and look beyond the obvious.