Entrepreneurs Rely on Different Funding Solutions to Build A Startup
All startups are presented with some sort of financing requirements to hammer out and develop their business ideas into a solid product. This is often a requirement before one may have a chance at acquiring more extensive funding in the form of venture capital. Venture capital usually involves larger amounts of funding, often in the millions of dollars range, and is very rarely involved in early-stage businesses that lack stability and structure.
Startup founders all pursue funding in their own ways, but there are several solutions that have been quite commonly used to fuel the initial growth of a business.
The majority of entrepreneurs rely on their own pockets to develop their business ventures, according to a study performed by the Small Business Administration. The results dramatically showed that 57% of startup capital was financed by the personal savings of the company’s founders. It was also the main source of financing for expansion capital, ranking in at 22%.
Entrepreneurs are often characterized by their passions and ambition; and with this in mind, it’s no surprise that many of them use their personal incomes, in what is called bootstrapping, to start developing the idea or service in question. Some founders have managed to find success, building their brands by utilizing their own wallets.
Taking full responsibility
While not the easiest method, bootstrapping certainly has its strengths. By relying on personal finances, this forces entrepreneurs to utilize more discipline when making financial decisions. This direction comes with the added benefit of allowing the entrepreneur to concentrate on business development, as opposed to fretting over funding.
For those who manage to pull it off; these entrepreneurs will be rewarded more handsomely, as they maintain the equity and shares of their venture since investors aren’t involved. The ability to independently finance and develop a business may very well be an encouraging sign to investors as well.
Wall Street Prep Founder Matan Feldman, was a J.P. Morgan investment banker and had a vision of creating a business that provided financial training for aspiring students. Not wanting to enlist the services of angel investors or venture capitalists, he used bonuses that he received to initially fund the venture and used the Company’s cash flow to improve and expand its foundation.
Credit cards are also frequently used by entrepreneurs needing access to capital. However, it does come with the risks of racking up lofty credit card debts, much like Airbnb co-founders Brian Chesky and Joe Gebbia experienced. While developing their business idea that would transform how accommodations were found, they were in tens of thousands of dollars in credit card debt.
After an innovative idea involving cereal helped to improve their finances, they were then accepted into Silicon based, Y Combinator.
While there are success stories, bootstrapping does come with some inherent risks. Obviously, a lack of capital can serve to restrict a founder’s ability to promote growth throughout their venture. This could result in an unsustainable source of funds, while also placing stress on the founder and the team.
A strong source of investment
Crowdfunding platforms consist of two primary models: equity-based and rewards-based. Equity-based crowdfunding platforms such as Indiegogo, Microventures, and Wefunder, allow anyone interested to become a startup investor. This investment usually comes in exchange for equity in the form of company shares or a percentage of ownership.
Rewards-based crowdfunding is commonly used by startups to secure funding through project backers on platforms such as Kickstarter, and focus on incentives such as exclusive discounts and deals for investors. It also helps to increase exposure and expand brand value through investors who serve as an effective voice to promote the venture.
With the major strength of social media, crowdfunding pages lead to increased traffic to startup websites and better recognition through social channels and word of mouth.
On the other hand, crowdfunding campaigns come with their own slew of challenges, such as the ability to meet the demands of investors for rewards-based crowdfunding campaigns. One frequent problem is businesses who fail to ship their products in a timely manner, such as the Pebble E-paper Watch, which generated over $10 million in 37 days, but failed to ship out their products until 10 months after the campaign had come to a close.
Events such as these only serve to damage a brand’s reputation and credibility. Other campaigns may struggle to generate enough interest to proceed with marketing their product or service. Marketing, advertising, and legal expenses can also lead to financial struggles for startups progressing on the crowdfunding route.
Maximizing investments into startups
Digital Asset Monetary Network, Inc.(OTCMKTS:DATI) is a startup accelerator that provides extensive services to help fuel new and growing startups, including crowdfunding, through FINRA member equity crowdfunding platform truCrowd, Inc. The Company played a major role in onboarding A.I. technology company WorkDone Inc., onto the crowdfunding portal, funding their financial and legal costs, along with initial crowdfunding costs for marketing their campaign.
DATI is committed to assisting startups through an extensive network that connects ventures to investors, who benefit from early liquidity, through their Public Accelerator Incubator business model. This enhances the appeal of DATI’s vast portfolio of promising startups, as it allows investors to experience liquidity within 2 years.
CEO of DATI Ajene Watson said, “DATI assists by supporting those qualifying issuers who have become clients, by providing ongoing financial support and investment capital. Startup entrepreneurs now know that through truCrowd, they could potentially receive the resources so desperately needed for young companies to grow and for businesspersons to maintain control of their company, during the early stages of their crowdfunding effort.”
Personal financing and crowdfunding are among the most common methods of securing financing for startups. And, although there are inherent risks associated with each different method of obtaining financial support, many still find the way to success, as startups continue to emerge throughout the market.