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FAQs | Funding

Alternatives to VC

Q: What are the alternatives to VC financing?
[Ed Albrigo, ealbrigo@corpos.com]

There are many creative ways to finance a company. Here are just some:

1. One company had six founders and they each got as many credit cards as they could. They got cash advances on all of them and then put them in a safe deposit box for safe keeping! They bootstrapped the company this way. They now earn about $60M in revenue per year (of course - this is a very costly way to get cash is not necessarily recommended).

2. Many companies do consulting/contract/custom work to help fund product development. When taking on this type of work - always get paid partially up front. You also want to make sure that the projects are manageable so that you have time to work on the real business. And make sure that projects relate to your future business (i.e. do it for a future customer or partner).

3. Apply to PIN and other "angel" networks.

4. You can try for loans/debt - if they will give it to you - but be warned - if you want to raise VC money at a later point - VC’s don’t like debt. It may not take you out of the running, but it may make it more difficult.

5. You could factor receivables.

6. Friends and Family are good places to tap.

7. Some companies get government grants for their research (depending on what it is) and some have received grants from overseas - if they put a development/programming team in the country doing the grant.

8. Future partners/customers can be willing to fund some R&D for some special pricing and rights. Be careful with this one - make sure their demands are not so onerous that they hurt your future prospects with other partners/customers.

9. If you have real assets (i.e. - not just people and software ) you may be able to negotiate extended payment terms with vendors. You can also get venture leasing dollars for your assets - but they want some equity for taking the risk.

10. You may be able to do a private placement with several individuals/institutions. But be careful when selecting your banker for this one. Check out their reputation thoroughly.

11. Marion Kauffman, who started Marion Labs (which merged with Dow and made 300 millionaires out of Marion Labs employees) started his company with $5,000 that he earned gambling about $100!! Of course - this one isn’t recommended either - but it is creative!

The bottom line is, the more you can fund the initial development phases with alternative financing the more attractive you will be to VC's and the better your position will be to negotiate price.

[Suzanne Hooper, shooper@nea.com]

 

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