What to do when you have an idea, but aren’t yet able to attract the attention of a willing venture capitalist? When you have the belief and the passion, but are not eligible for the kind of bank loan you need to get your venture off the ground?
It’s undeniable that times are hard for start-ups. Big banks, corporations and venture capitalists are now more wary with their money and many credit lines have simply vanished. It’s a crowded market whichever way you look.
However, necessity is the mother of invention and this adage holds especially true in business. Start-ups have been forced to get creative in their search for entrepreneurial capital. There is still no substitute for graft, but there are many routes to funding
Here are five of the less conventional ones:
Crowdfunding is the savvy media darling of start-up funding. This is done by harnessing the power of the internet to attract investors. Platforms like Kickstarter provide a simple, easily accessible platform to give your project visibility.
The internet is a fickle place, however, and you’ll need to understand your audience. Zach Brown recently raised over $50,000 USD on Kickstarter to make potato salad simply as his project appealed to a certain sense of humour and went viral. Meanwhile, other worthy causes languish in obscurity.
Consider reputable crowdfunding sites orientated towards businesses. In the UK, try seedrs.com and crowdcube.com. Crowdfunding is expanding rapidly, and a wide range of more niche sites has emerged. MoolaHoop only lists start-ups run by female entrepreneurs, whilst there are several sites devoted to green-energy initiatives.
A crowdfunding campaign should start like any social media campaign – through your own contacts. Tap Facebook, Twitter, LinkedIn and any other networks you are active on and make sure you stand out.
2. Peer-to-Peer Lending
In essence, peer-to-peer lending uses the internet to cut out banks. Websites such as Zopa, Fundingcircle and LendingWorks connect entrepreneurs with savers, allowing startups access to flexible loans at lower interest rates. Investors get the interest paid by the borrower in return.
Good peer-to-peer lending sites will operate stringent credit checks and have anti-fraud measures in place. Borrowers will need to satisfy a number of requirements before they are approved. Most sites will also have a reserve fund in place to compensate lenders if need be.
3. Strategic Investment
Strategic investment generally refers to another company choosing to invest in your startup as a long-term strategy, rather than simply acquiring it.
However, the principle can be extended further – your potential customers are potential investors. Convince them to put up the money for materials against the return when your finished product is sold.
4. Creative Bootstrapping
Bootstrapping – so named for the legend of the Baron Munchausen, who pulled himself out of the sea via his bootstraps – is the process of funding your startup by ploughing all profit straight back into your business.
Bootstrapping can be soul-destroying, but it can be effective. It encourages a service-led approach and a small-scale approach, focused on immediate results. If your product is still in development, can you offer out your services? Do you have any skills you can trade for needed expertise?
Otherwise, get creative. Consider running events – music nights, bake sales, workshops – on the side. It will get the community involved with your business whilst giving you the capital you need to stay afloat.
5. Start-Up Competitions
Whilst it can be a lot of work to enter competitions, the rewards include money, good PR and valuable experience.
From the Shell Livewire awards, which offer monthly prizes of £1000, to the Lloyds Enterprise scheme, which gives up to £50,000, there’s something to suit start-ups of all descriptions. Many are targeted towards students and recent graduates, such as the RBS Enterprising U scheme. Universities, too, often have awards for enterprise and sometimes host start-up incubators as well.
As with any competition, the key to success lies in research and preparation. Know your audience, know your product and be confident in your pitch. Good luck!
About the Author
Written by Jonathan Myers – Director at UWM Accountants, a dedicated team of Accountants in Leeds, UK. As a compact and friendly agency, UWM offers attentive and helpful customer service, whilst also reacting quickly to any new challenges.
If you’re setting up a new business, make sure you build rock-solid foundations with UWM’s free eBook: Grow Your Business – Doing the Simple Stuff That Works.