One of the biggest misconceptions around funding is that there are only so many choices you have. We assume that our success is limited unless we, for example, win a contest, save enough of our personal funds, or go viral. During BlogHer’s virtual International Women’s Day event, a trio of experts put that harmful myth to bed while waxing poetic about all of the funding types entrepreneurs should know about.
“There’s two main buckets of financing and these days, most attention goes to equity [funding]. Media is constantly writing about angel [investors] and venture capitalists and having to pitch them, but only 1-2% of all companies raise angel and venture capital,” said Geri Stengel, President of Ventureneer.
“What’s really exciting is over the past 10+ years, since the last fiscal crisis, an array of new financing options have come out.”
The range of fundraising options includes everything from popular free money options like pitch competitions, grants, or donations from friends and family, to less popular alternatives like Community Development Financial Institutions (CDFIs). These non-profits are typically funded by the U.S. treasury, foundations, and faith-based organizations. They’re also a great fit for women of color because they exist to support underrepresented groups.
“Their interest rates are going to be a little bit higher than banks, but banks really won’t lend to you until you’re three years in business. They look at things like your character and the type of business you’re going to be in more than the typical credit score a bank would look at,” added Stengel. “They do provide technical assistance and they’re a big part of the Biden Administration’s push so expect once the Small Business Administrator is approved, that there’s going to be a big push on CDFIs.”
There’s also crowdfunding, a category in need of some demystifying. For one, there are two different types–reward-based and equity-based. According to Virginia Almendarez, Senior Entrepreneur Success Manager at IFundWomen, the former provides an incentive for people to support your campaign, usually in the form of swag or services. What usually trips newbie founders up is a mindset that equates crowdfunding with charity.
“This is not charity. This is you having a specific problem that you’re looking to solve to move your business forward and you’re asking for people to support you,” she said.
Equity-based crowdfunding is a bit different but equally effective if you decide it’s the most appropriate fundraising option for your business.
“Rather than providing capital and then receiving a product or a service…they’re receiving equity or future equity in a company. For that reason, it tends to fit a different kind of startup with an investor mentality,” said Brooke Chapin Robbins, Porfolio Success leader at Republic. “It’s a really powerful message to go out to your early consumers and say, ‘We want to invite you to join us on this crazy ride and potentially see an awesome return.'”
Ultimately, your business goals will shape your choices and it’s important to deconstruct your needs beforehand. This includes knowing the size of your target market or audience, how much money you need, how you plan to spend that money, and more.
Most importantly, you should educate yourself on the entire financing spectrum before moving ahead because venture capital and angel investments aren’t the right fit for everyone.
Rewatch the Fundamentals of Finance panel (above) for more funding options and insights.
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