Startups are hard. Building a product is hard. Finding that elusive "product-market fit" is hard. You know what is very really freaking hard? Raising money, when all you and a co-founder have are a shared laptop and some grand aspirations.
VCs and angels are a clever, shrewd bunch. Considering they often invest in maybe five startups out of a 1000 that pitch them, it is very likely you may be led on by one, subconsciously debating your office décor only to hear crickets when it should have been the fax machine producing a term sheet. And while the chase game of fundraising is in effect – you are taking meetings and running the deck — who’s left building the product, the one thing that will actually make your company succeed?
The best advice I can give? Forego looking for a seed round, and bootstrap the company instead. Let’s look at some alternative ways to keep the company afloat while you build the next big thing.
The first to the rescue are usually Friends, Family and Fools, or the Three F’s, as they like to be called. Tapping into your immediate support system is an obvious first step. But what if your uncle isn’t an oil magnate from Dubai? Well, here is where you first carefully asses how much you actually need. What is the bare minimum that can sustain you and your fledgling firm while you create the product? Be realistic, as you are more likely to get money from the close people in your life not on business potential, but on their faith in you, your personal potential. Don’t let them down!
Loans and credit is the de facto method for getting the company off the ground with some capital infusion. Banks, however, tightened up their lending policies since the crash. Therefore, if you are pre-revenue and pre-prototype it may not be an option to really bet on. That said, banks aren’t also the only financial institutions to give out business loans – venture debt funds and government programs can also participate at this stage. And if all that fails, there is always the option of taking out a credit line or piling on some credit cards. While this has worked for some, it also tarnished the credit of countless others. Be realistic about your timeline, and reduce risk wherever possible.
Grants and Awards
If you and your co-founder are cooking up something special in the garage, you may qualify for a range of government research and innovation grants and/or awards. Given that these options take a bit of time to really come together – consider the preliminary investigation, selection, application, follow-up – it is advised you get going with it sooner than later. Assess your options and figure out which criteria must be met for you to be selected. Some awards are given out in early stages based mostly on concept and market, but they are heavily reliant on the entrepreneur leading the pack and the experience he/she brings. Needless to say, these grants are highly competitive. Sifting through the multitude of options is an arduous task, but it may reward you with a no strings attached cash infusion, either at very favorable terms or no terms at all – take it and run with it.
A recent emergent trend is that of crowdfunding. By now most of you have heard of the $10 million campaign on Kickstarter and the countless other products that were catapulted from obscurity to happy customers the world over. The reality, however, is a bit less rosy than that. In the early days, there was virtually no competition for so-called "mindshare" of customers. If you had a product that was half interesting on a popular crowdfunding platform, you would meet your goal. Nowadays, however, companies big and small are all trying to sell their stuff through pre-orders. Thus, you are not competing against a couple guys with a clanky prototype but well-oiled operations that simply don’t want to deal with retailers – and you can bet this is not their first rodeo. This likely exists as an option once you already have something in place and functioning. Remember to make one heck of a video.