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Can Startups Survive Without Investors?

Exploring options for raising capital

7Sep

Being a new entry to the market and trying to win customers' loyalty with new innovation is never easy. Even though today the startup community is surrounded by support and encouragement across all industries, many still struggle to pass the ’seed' stage. Having a brilliant idea and a dedicated team is good, but if money is missing, it's impossible. Chasing VCs and Angel investors can be exhausting and demotivating, that's why some entrepreneurs intentionally avoid partnering with investors.

It would be wrong to assume that getting a VC is easy, in fact, according to the Small Business Administration, over 600,000 businesses are registered in the US annually, and only just over 300 are funded by VCs. As a startup, there is no reason to react with disappointment and desperation, though. Investors are not the only source of capital, despite being one of the fastest routes. Moreover, funds provided by investors are never based on a pure generosity and don't provide a freedom of action.

One of the reasons why people want to set up their own business is a desire to be their own boss. However, many don't acknowledge that VCs are even more demanding than those in corporate environments. Most of the VCs today are interested in nurturing startups and pointing them in the right direction, but understandably, they are also interested in returning the investment. Thus, when startups fail, it's often because they are eager to grow but unable to return the capital - a risk not many VCs want to take.

So what are the options for funding, if not VCs and Angel investors?

Bootstrapping

With bootstrapping, entrepreneurs would need to check their wallet first. Most of the time, startups who use the method would already have some initial capital in the form of savings or credit cards. Bootstrapping promotes using existing revenue for growth, so those interested would need to already have customers too. Bootstrapping particularly suits digital startups, and one of the good examples is El Toro. This Kentucky-based IP Targeting provider delivers display advertisements to specific households, based on IP address and avoidance of cookies. El Toro's CEO Stacy Griggs believes that in their case, bootstrapping worked because their growth was fed by a cash flow from customers, and as it continued, they could use a profit to reinvest in additional features and developments.

SBA

Another funding option is the SBA (Small Business Administration), the US government body that supports entrepreneurs and small businesses by providing loans and grants. By the end of 2014, the organization approved nearly 53,000 loans worth $20 billion. But again, those funds are not on a free basis and act similar to a mortgage scheme, where a company needs to pay an interest rate.

Grants

With this one, all should be clear but there are some tricks. On the bright side, grants typically don't require companies to pay them back, but, they are hard to catch and if found, almost impossible to get. Highly valued, grants are usually hidden so deep in the government system or a supporting organization that it's too time-consuming to find them. If an entrepreneur wants to apply for one, there is also a long bureaucratic procedure, and some grants accept applications only a couple of times a year. Some will be lucky enough to get a grant, whilst others will have to wait, having no guarantees.

No matter which option entrepreneurs consider, they have to bear in mind that little capital is better than raising too much. Each capital requirement has to match a particular achievable target in order to have control over growth and finances. Each type of fundraising is individual, and it's as important to find the right option, as it is to get the capital. Only with a suitable source, will the business not get into trouble and grow sustainably.

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