Raising capital is a feat in itself, and in the venture capital (VC) game, being a Black entrepreneur brings about its own set of challenges. You could be low-balled on valuation due to cultural unawareness, or an investor can ask for a huge chunk in ownership for a minimum investment. Take CurlMix founder Kim Lewis, for example, whose commitment to majority ownership led the multi-million dollar startup down a non-traditional funding path.
Since the glorified VC l funding approach is receiving a lot of attention in the startup world, many founders assume it is a must-do in the quest of having a successful company. However, the VC game can be tough and has unseen cons that are only recognized in hindsight.
There is a myth that VC funding automatically translates into a successful company. When, in reality, funding is only the initial step. TechCrunch data shows that 5 percent of VC funds are successful, defining success as having a return of three times more than the initial investment. From the startup view, this means nearly 95 percent of VC’s portfolios were not profitable enough to have a significant return on investment.
However, startups still need funding, and if not the VC route, then what other options do early companies have? Here are some funding alternatives that may work:
Offer Pre-Orders
The saying of “build it and they will come,” isn’t always promised in the startup world. Following this motto could land you staring at loads of product collecting dust. Offering pre-orders to an already established customer base will not only help you move products, but it could be the boost in funding your startup needs to fund the next round of business. Generating buzz during your pre-order campaign can drive home the success rate.
Add a Subscription Service
Adding a subscription service to your overall startup is an overlooked avenue for companies looking for extra cash to fund the next phase of business. According to Forbes, over the past five years, the subscription industry has seen an increase of more than 100 percent. Even if a subscription service wasn’t a part of your original startup idea, allowing for flexibility and adaptability can give your startup a boost in funds when VCs aren’t an option. For example, after several years in business, Amazon launched its Prime subscription in 2005, which has an estimated 105 million subscribers, according to Statista.
Consider an Angel Investor
According to a Global Entrepreneurship Network study, angel investors spend an estimated $25 billion in 70,000 businesses annually. Having a one-on-one relationship with an angel investor can cut out the tedious leg work and wait-time involved in the VC funding process. An angel investor may also share the same passion and vision, as opposed to a VC who might only be interested in the monetary return.
