Crowdfunding for Startups & Other Forms of Alternative Financing

Here’s a quick overview of crowdfunding for startups and some alternative forms of financing that could meet your needs.

By: Courtney Elder

Imagine where some of today’s most successful tech companies would be if they never had any capital to get their ideas off of the ground. While some surely would have found a way to survive, there’s no doubt that many of the most prolific startups would’ve succumbed to financial pressures or never even gotten to the point of raising a Series A.

Today, it’s even more important to ensure that you have adequate startup funding due to the sheer amount of competition in the world for market share, particularly in the tech industry. Yet if you’ve gone through any sort of fundraising efforts in the past, you know firsthand that asking people for money – and then actually receiving it – is far more difficult than it appears.

That’s where the idea of crowdfunding comes into play, and as more and more crowdfunding sites become tried and true methods for raising capital, you might wonder if it’s a feasible option for you. Here’s a quick overview of crowdfunding for startups and some alternative forms of financing that could meet your needs.

Understanding The Basics of Alternative Financing

Just as it sounds, crowdfunding is the idea of raising funds from a crowd of people. Rather than striking up a deal with one VC or investor and essentially putting all of your proverbial eggs in one basket, crowdfunding allows you to raise capital through numerous smaller donations. Startups can certainly crowdfund on their own using a variety of websites like Kickstarter or Indiegogo as well as pore through their phones and make individual requests of everyone they know.

Other crowdfunding options use platforms geared more toward startups specifically rather than the ones mentioned above that are often utilized for medical expenses or artistic endeavors. SeedInvest has positioned itself toward top tier technology startups that are “highly vetted” while CircleUp can help with companies who are trying to bring products to market.

The process of employing crowdfunding sites are all relatively similar and requires an application to get started. Some of the more startup-specific options may request additional information from you or offer the option to submit pitch decks or financial information as part of their diligence process. It’s important to consider the avenue you take when it comes to crowdfunding as some investors may ask for equity or board seats.

Additional Options On The Table

If you’re not excited about hounding your great aunt twice removed for startup funding and if a more traditional crowdfunding platform doesn’t make sense for your business either, are you out of luck when it comes to non-VC fundraising? The answer is a resounding “no” thanks to alternative options that have entered the marketplace in recent years.

Companies like Lighter Capital work differently in that they take a close look at your current financial position, metrics, and marketing performance to determine their level of risk. This form of financing functions under a revenue-based model and is a combination of more traditional lines of credit and venture capital. Rather than giving up shares of your company so soon, these options allow you to repay the loan as your business makes money. If you have a slow month, you aren’t penalized and or forced to pay a fixed amount – essentially, it’s a far more flexible way of repaying your debt without giving up control. The interest on these options can be expensive though, so be sure to read the fine print!

Elements To Consider

Depending on your startup’s specific nuances or where you are in your company’s lifecycle, one of these options might be more appropriate than the other. For example, Lighter Capital partners with companies that are generating at least $200,000 per year, so if you’re in a pre-revenue stage or aren’t quite hitting that benchmark yet, another platform may be more suitable. Keep in mind that there are numerous crowdfunding sites out there, so it likely won’t be difficult to find one that meets your needs. We have seen strong interest in SeedInvest, especially, in our own research.

Also, keep in mind what you want to accomplish on a longer-term basis with your financing partnerships. If you opt for a site like Kickstarter, there’s a high chance that you’ll be on the hook for dispersing products, subscriptions, or some other form of reward for larger investors. This costs money and needs to be planned for. Some crowdfunding options may look to acquire a stake in your company too, something that could potentially become a drawback during Series funding as you’d have less of your company to distribute. Remember, every round impacts the next.

Ultimately, determining the best financing vessel for startups isn’t an easy process but it’s nice to know that there are now more options than ever before, whether it’s VCs,Venture Debt, Revenue-based, or crowdfunding itself. If you have an investor asking for pitch decks, models, or financials, click the link below and we can get you moving in the right direction.