What is the right path when evaluating the pros and cons of different sources of startup funding for your venture?
There’s more than one way to fund your startup. Each has its own pros and cons. Which is right for you?
Small business loans from banks used to be the first stop and go-to source for funding new companies.
The Ultimate Guide To Pitch Decks
- You won’t have to give up equity in our company
- You don’t have to create a pitch deck
- May find it easier to finance real estate assets and equipment
- Good credit may help make up for what you lack in design skill and pitching ability
- Rarely available for new startups
- Lots of paperwork and lack of common sense underwriting
- Poor customer service
- Monthly debt service repayments required even if you aren’t making money
Equity and debt crowdfunding and hybrid uses of convertible notes exploded in popularity with the passing of the JOBS Act. However, when you are thinking about the pros and cons of different sources of startup funding and considering this one as an option regulation can be a real hurdle.
- Don’t need to add the pressure of monthly repayments and overhead
- Ability to recruit more stakeholders who are invested in your success
- Leveraging existing platforms and investor databases
- Raising publicly can help create buzz and urgency among potential investors
- Still requires a strong marketing strategy and a sizable marketing budget
- Can require hefty legal fees and filing with the SEC
- Platforms can be costly and take a big bite out of your raise
- Success can rely on already having your round significantly subscribed to in advance
Donation-based crowdfunding predates equity crowdfunding and has been used to launch a variety of successful startups.
- No need to give up equity in your company or take on the burden of debt
- Use it to gain early customer and users
- Generate buzz, branding, and marketing while raising money for your startup
- Lower regulatory and legal costs
- It’s not as cool as it was. It’s a little too 2013
- Platform fees and processing costs can take a big bite out of money raised
- Your success or failure is all public online for the world to see forever
- Can require a lot more marketing, strategy and investment than most founders expect
Friends & Family
No matter how big you go, raising money from friends and family will probably be one of your first steps as you are thinking about the pros and cons of different sources of startup funding. Other investors are going to question why they should trust and believe in you if these people who know you best haven’t.
- They may be far more forgiving if you fail or it takes longer to get results
- You’ll love being able to share the rewards of your success with them
- Low expectations for pitch decks and business plans
- The low burden of meetings and pitching and negotiating terms
- If it goes badly you could lose your most valued relationships and friendships
- May not be experienced investors or advisors
- Your initial circle and network may not have a lot of capital to invest
- You could end up diluting your cap table without getting much capital in
When evaluating the pros and cons of different sources of startup funding, keep in mind that angel investors are usually your next stop on the fundraising circuit after your friends and family round.
See How I Can Help You With Your Fundraising Efforts
- Fundraising Process : get guidance from A to Z.
- Materials : our team creates epic pitch decks and financial models
- Investor Access : connect with the right investors for your business and close them