Giving away equity can be necessary for growth. And whether it’s a technical partner, business development leader or early stage investor, signing away a piece of the pie can be painful. New options make it possible for entrepreneurs to delay – or sometimes avoid – the inevitable.
Here’s my breakdown of 5 ways founders can rake in the dough without giving up equity.
Crowdfunding
Kickstarter, Indiegogo and others have demonstrated that an idea from the right entrepreneur can earn millions in crowdfunded capital.
Pros
- Tools like Kickstarter and Indiegogo make it ridiculously easy for anyone to collect capital on an idea alone.
- When an idea goes viral or gets big media attention an entrepreneur can earn millions.
Cons
- Non-equity-based crowdfunding won’t work for you unless you have a tangible, semi-mass-producible product to offer.
- Online donors are savvy and typically won’t fund ideas that aren’t well thought out or from established names in the startup community.
- Crowdfunding creates additional work. Having a marketing plan and the people to execute is essential for success.
Get Started
- Researching successfully funded projects can help entrepreneurs structure page layout and acquire the right mix of creative assets. Planning the crowdfunding page marketing strategy will maximize odds of success.
Cash Prizes for Small Businesses
Entry into contests may seem like a long shot, but voting and nomination models help small businesses take matters into their own hands. Contests like the SMB Challenge promise to give $50,000 to winners for entering.
Pros
- Small business contests are easy and often free to enter.
- Entrepreneurs are not restricted in how they use contest winnings.
Cons
- In many cases final winners are chosen by a public vote. This also means that, like crowdfunding, business owners must set time aside time to promote their company page and earn votes.
Get Started
- Entrepreneur forums and gathering places may help locate new contests. Creating a list of contests and template entry language may help entrepreneurs manage the process.
Government Grants
The United States gives out millions in grants each year to new companies. Criteria for eligibility varies based on the details of the grant, and while the concept is old the money continues to flow.
Pros
- Government grants are small businesses friendly. Doing a quick search can uncover opportunities that fit a variety of industries.
- Small business grants can be large, creating a major windfall for cash-strapped founders.
Cons
- Winning a grant means having the right people with the right credentials and often endorsement from a major research institution.
- With narrow industry focus (typically STEM industries), hypercompetitive environments and long lead times government grants may be out of reach for many entrepreneurs.
Get Started
- While resources on government grants abound, entrepreneurs are advised to start at official state and federal websites and branch out from there.
Goals and Savings
While it may seem like an obvious way to fund a business, earning and saving money has never been easier.
Pros
- Free tools like Mint.com allow entrepreneurs to get a complete picture of their own net worth and set comprehensive savings goals with time periods attached.
- Companies like Airbnb and Buzzcar are helping entrepreneurs fund their dreams with sustainable, recurring revenue streams.
Cons
- Saving money takes time. Without aggressive supplemental income entrepreneurs may have to wait a year or more to fund their dream idea.
Get Started
- Entrepreneurs should create a plan to save enough funds to get the business off the ground and set a realistic monthly savings goal. Tracking the goal religiously and staying on target will ensure success.
Friends and Family
An entrepreneur’s friends and family can be an accessible, easy to manage form of early stage capital.
Pros
- Friends and family are more likely to come with few strings attached, allowing entrepreneurs to run the business without interfering in day-to-day operations.
- Accessing cash from friends and family can be one of the fastest forms of funding.
Cons
- Asking friends and family for financial help comes with a host of psychological pitfalls and may change relationships for the worse.
- While it is tempting to take the money and get back to business, entrepreneurs should take care to be as transparent as possible, communicating early and often with investors.
Get Started
- Start an email list or private Facebook group for transparent and continuous communication with friends and family investors. Entrepreneurs must let them inside the company without adding workload to their already busy schedules.
