A widely held notion among many people in the entrepreneurial circle is that the way to start and grow a prosperous business, be it a limousine service or tech company is to come up with an outstanding idea, write an awesome business plan, raise capital from venture capitalist and flawlessly execute your plan. This is always not the case, and chances of failing are on the high.
Taking a venture capital at the very initial stage of your business may be a bad idea. Additionally, in the very early stages of a startup, most financial institutions do not work. Below, we discuss innovative ways to raise startup capital for your business without seeking the help of venture capitalists. Here are the ways to go about it.
Pricing and purchasing structure
The use of a subscription model allows businesses to charge up front for an increased access to a service or product. With this model, you require customers to pay upfront then use the sales generated to finance the creation of a new service or product. The subscription models that you subject your customers to range from monthly, quarterly, bi-annually to annually. This model can prove to be very important when bridging an initial funding gap or when you are seeking to raise equity financing.
Trade and Barter
Trade and barter can be a very good model if you require funding to grow your company. If you are in the non-profit space, trade and barter may mostly come in the form of in-kind donations. If you are for profit organization, sometimes it may be easier to raise $50,000 worth of goods as compared to raising $50,000 in cash. All you need is to be flexible in your negotiations to achieve the best outcome. You can also search for opportunities that allow you to create mutual value through sponsorships.
Purchase Order Financing
Leveraging memorandums of understanding, contracts and purchase orders can enable you access financing at a cheaper rate. Let’s take an example; suppose you are in a contract with say, government to build 500 units of housing, and you need money to manufacture the initial inventory. You can choose to share your purchasing order with a financier to access debt financing at a lower rate. You can also sign legally binding agreements to pay for any service or product rendered.
Accelerator programs and fellowships enable entrepreneurs to grow their business and increase the likelihood of their business success. There are a lot of internationally recognized accelerator programs such as Y Combinator and TechStars. These accelerators normally invest a small percentage of equity. There are notable fellowships such as Kellogg Fellowships and Kauffman Fellows Program.
Family and Friends
Another sure way to raise capital for your business is through yourself. However, if your funds can’t allow, you can try raising it through family and friends. However, many entrepreneurs shy away from involving their family and friends in contributing towards their startup. It should not sound like begging or putting the people you love in an awkward position. All you need is to pitch to them professionally.