Often the media portrays the best source of capital for a start-up company to be venture funding. Therefore, many people think that venture funding is the only source of start-up capital. Not only is this not true, but often at the earliest stages, an investment from a venture capital firm means a huge loss of equity. There are a significant number of other sources of funding that an early stage company can call upon, especially if the company is in the high-tech arena.
If you are doing basic or pre-product research, take the time to submit for grants. Although this is time consuming and certainly not the fastest way to raise money, the government and other grant quick business funding agencies do not want ownership in your company. SBIRs provide a six month phase I grant for $100,000, followed by a significantly higher grant for Phase II, from $500,000 to $750,000. If you apply for and win two of these grants, you can get a good start towards funding your company.
If your company only needs a small infusion of cash, you can get a SBA loan, or if you have a good relationship with your bank, a line of credit. Also, a bank will lend against your receivables, if your customer base is reliable. Many people are afraid to tap into debt sources because they don’t want to be burdened with the debt if the enterprise fails. However, if you don’t believe in the company enough to place your own credit behind it, why should anyone else.
If you are looking for less than $1 million, tap into a local angel network. If you don’t know any rich people, find them. If you can’t raise $1 million in angel investment, your idea may not as good as you think… or you may not be the right person to sell it. Seek help through local business development agencies, SCORE groups, or technology incubators. These folks are all tied into the fund-raising network in the state.
Consider taking on contract work to fund your product development. If you have the right equipment or people to handle small contracts on a part time basis, use this revenue as a funding source. Use creative means to keep your costs low. Join an incubator to take advantage of the services they offer for a lower price. Bartering is another great way get the use of space or equipment that would be prohibitively expensive.
Part of being an entrepreneur is being creative. Use that creativity in financing your company and save the venture capital for the growth stages.