Chapter 3 - Start Up Fundraising
IN THIS LESSON
Options for Raising Money Without Giving Up Equity
In life, there are trade-offs to virtually everything. In the start-up world, one of the biggest trade-offs is giving up part of your equity of your company in exchange for money that you need to grow your business. By giving equity to investors, you simultaneously dilute your own equity position in your company, which means you don’t own as much of the company anymore.
Thankfully, there are ways to raise much-needed money (capital) without needing to give up equity and dilute your ownership position of the company. Capital without dilution – that’s the focus of this module.
Crowdfunding is one way to raise money for your business without dilution of equity. You need to work with a platform that provides the capabilities to make the crowdfunding campaign successful.
Debt is a way to raise money in the form of bank loans, lines of credit and invoice factoring. You can also use real estate or equipment to secure lines of credit. Also, you can leverage your supply chain to get lines of credit from your manufacturer to cover the cost of supplies, when needed. Please note that you must be careful in taking on debt and you should talk to an experienced financial expert about the risks associated with different kinds of debt.
Borrow money from your family. It can be dicey, but when you borrow money from family (or friends), you don’t have to give up equity. This is probably the best route for you at the very beginning of your start-up journey.
Grants are available to fund your business, and they are essentially “free money.” You don’t have to pay them back, even though you may have to show how you used a grant to produce something.
Initial Coin Offering (ICO) is another possibility, albeit harder to understand than the other options. You’d want to educate yourself more on it and use an SEC-compliant, turnkey ICO solution, such as Start Engine. Instead of equity, investors receive a share of the revenue.
You could also potentially use credit cards in the short term but be careful of the high APR / interest rates. It could create a problem for you, if mishandled.
In short, there are different capital options for you to consider at the earliest stages of your start-up. Not giving up equity at such an early stage is difficult simply because the risk attached to you start-up is too high for most investors. However, as you drive your idea forward and create compelling data points, you will find yourself with more leverage on the negotiating table when it comes to raising more money in exchange for capital.