2 min read: A common funding source for launching and growing a business is equity funding. However, equity funding is expensive. Luckily, there are many other sources of funding you can take advantage of and put to use. This article will discuss several sources of funding your startup can consider.
Anchor Clients
Anchor clients are those who prepay for a custom version of your product. They are typically more prominent companies that have special needs. If you are building an enterprise or consumer software product, consider looking for an anchor client to pay you to create a custom version of it.
Anchor clients provide funding and a precise specification of what they want. Unfortunately, they often hurry and want the solution yesterday, which means they will pay the best price. Also, anchor clients give you information about the market. Anchor clients have researched it and have not found the solution they want.
These clients become good references to use when you launch your standard product into the market. One of your platforms may require more than one anchor client to fund a version fully. Take the funding you need to build your platform and divide it by three, then look for three anchor clients to cover it.
Bootstrapping and Barter
Bootstrapping uses your funds and initial customers to launch your business. Investors tend to appreciate you investing personal funds as it shows you have skin in the game in addition to sweat equity.
Barter is a valuable tool to reduce cash expenditures. Consider providing your services to businesses that can provide you with something you need in return, such as bookkeeping, accounting, legal, and financial work. For investors, this demonstrates resourcefulness and the ability to negotiate.
Accelerators and Incubators
Accelerators and incubators provide startups with workspace, mentorship, pitch practice, and in some cases, funding. Sponsorships are by universities, companies, and entrepreneur collectives.
Accelerators provide an intensive program to help entrepreneurs prepare their business and product for an initial investment. The classes are usually small, around 5-10 companies. At the end of the program, the participants pitch to investors for funding.
Incubators offer a physical workplace with offices, administration, and meeting rooms. In addition, universities offer accelerators and incubators for students and faculty who want to commercialize research.
The accelerator or incubator may have a fund from which it invests in startups who complete the initial program. Often, this takes the form of equity funding. However, some programs structure it as a grant, and In addition, they often sponsor demo days in which you pitch to prospective investors.
Other Funding Sources
There are several other funding sources to consider. Some examples include:
- Grants: consisting primarily of government-based funds that are one-time offerings and are paid back.
- Loans: This is debt funding that the business must pay back to the loaner.
- Factoring/AR Funding: This includes selling your invoices and accounts receivables in return for cash.
- Equipment Leasing: using equipment for a contracted time instead of buying reduces cash burn and spreads out the payments.
- Line of Credit: A short-term debt used for smoothing out the cash-flow cycles.
- Crowdfunding: This is collected via a prepayment for products from clients/customers.
- Consultation Funding: Extending your product to include consultation services is a way to bring in additional revenue.
- Supplier Funding: This consists of contract manufacturing or software developers who provide upfront cash injections in return for a contract to build or design your product.
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group
