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Although it might be hard to imagine, businesses can thrive without the help of investors.
Entrepreneurs have various reasons for not turning to enterprise capitalists for financial support for their startups.
Some people don’t desire the hassle of hearing others’ opinions on how to run their business, while others would moderately spend time working on their business than on the time-consuming task of finding the right investment partner.
Maybe because VC Investment levels fell by 35% in 2023and investor spending is falling.
Whatever the reason, there are alternatives to enterprise capital for founders looking to grow their businesses. In this text, I’ll outline 4 viable options, discussing their advantages, challenges, and when entrepreneurs might want to consider them.
Community collection
Engaging the customers you serve for financial support will be a good option for your online business—which is the whole point of crowdfunding.
Sites like Kickstarter, GoFundMe, and Indiegogo help entrepreneurs with good ideas find financial support from a large group of potential investors without the constraints that typically come with enterprise capital.
These crowdfunding sites allow people throughout the world to invest small amounts of cash into an idea they imagine in. Setting a goal and asking potential consumers to enable you achieve it not only provides a much-needed money injection, but it is also a wonderful means to generate pre-sales and market awareness for your product.
You still need a heavy marketing effort — a minimum budget of $50,000 — to cut through the noise of hundreds of thousands of other startups with the same idea.
Another danger is putting so much energy and resources into trying to reach a goal, only to fall short and lose all the potential money you raised. Crowdfunding sites typically only pay out if the goal is met on time—and even then, there’s a transaction fee.
When to consider: If your product is creative, revolutionary and customer-centric, you have a higher probability of capturing public interest and gaining enough financial support to succeed.
Business Angel
While your online business may not receive as large an investment as you’ll from a traditional enterprise capital firm, angel investors will be a promising financial alternative.
These wealthy individuals search out interesting startups—often in the industry they know best—in which to invest their personal funds, hoping to spark a business idea they honestly imagine in.
Angel investors provide access to capital like traditional investors, but they typically don’t come with as many strings attached. Some angel investors are even willing to act as mentors. The right angels can greatly speed up your organization’s growth by leveraging their connections and knowledge base, resulting in a higher fit.
However, as with traditional investing, angel investors expect some level of ownership in the company and even a seat on the board, which might create potential complications, especially if they have different expectations than the founder.
They typically invest much less money than enterprise capitalists because these people invest their very own money and are less willing to take risks.
When to consider: If you are an early-stage startup and need more capital than you may get through bootstrapping or crowdfunding, you may pitch and implement a recent, interesting idea with a solid marketing strategy.
Grants
You can all the time apply for grants if you are looking for opportunities to raise capital with more freedom.
Whether it comes from the federal government, state government, or private corporations, there are many startup-specific funding opportunities that don’t require you to hand over control of your online business and offer flexible repayment options if you wish to.
While the application process is time-consuming and highly competitive, it is value the effort if you have more time than money. You may even want to consider hiring an application author, as some work on a commission basis if they imagine your application can be successful.
You must also consider that some donors may restrict how the funds will be used, which could limit their usefulness in growing your online business.
When to consider: If you’re in technology, research, education or social enterprise, there are many grant opportunities that are much more aligned with the goals of funders.
Bootstrapping
I assume you’ve heard some variation of the phrase, “Pull yourself up by your bootstraps.” It’s a time-honored ideology that self-sufficiency and labor will lead to success.
Bootstrapping is a similar concept for startups: Your intelligence and determination will allow you to create value from limited financial resources. Creative founders shine when they’ll find low-capital solutions to critical problems.
This is a common practice among young entrepreneurs with limited business experience. While it might take them longer to adjust to the learning curve, they are used to working without capital and a salary.
Freedom from investors is the biggest reason many entrepreneurs don’t seek funding through investment. They have the final say and don’t have to share ownership with anyone else. It also allows them to grow their business at their very own pace. They don’t have to answer to anyone for financial reports, so the pace of rapid expansion doesn’t burden them to meet the expectations of investors.
Of course, this requires intense scrutiny of costs and expenses, often creating stress about funds and where to cut to remain solvent. Limiting financial resources and how to allocate them slows growth potential—and the ability to generate revenue.
It also exposes the founder to significant risk, since they sometimes back the business with their very own money. If the company goes under, they don’t have to be certain that investors or other brokers are compensated. However, they are betting on their financial well-being if things go badly.
When to consider: This option could also be feasible if time is not of the essence. You can achieve similar things without capital; it might take you much longer to get there.
Investment capital is sought, not demanded
Whether it’s traditional enterprise capital funding or one of those alternatives, there’s no guarantee you’ll secure the money you wish to grow your online business. Demand far outstrips supply in a market brimming with recent ideas and eager entrepreneurs.
Still, these options can prove useful to you if you set in the due diligence, labor, and a little luck.