Bootstrap Funding vs. Crowdsourcing vs. Venture Capital

When you’re starting up, you have several options for funding your new company. The model of your business may be a deciding factor on what kind of funding you should pursue.

You may also want to look at your model, to see if it can be optimized in any way to make your need for funding lower. What type of financing is best for your company?

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Venture Capital

One of the most tempting forms of funding is venture capital funding. If you, your team and your fund sources extremely confident in your business model this may be the way to go. The main advantage of this is the possibility of getting a sizeable amount of money to fund your ideas. Investors can be aggressive, especially when they have faith in your business plan and the research behind it.

You also will most likely be getting your funding from people who have high experience and expertise in the business world. Your investors will probably be very willing to give you advice and direction, so they’re not losing money on you. You also have a high probability of making powerful connections by being in close proximity to successful business people.

These advantages come at a cost though. As investors pour money into your startup, chances are they will want to be more involved in the business. You might need to take the backseat in operations, especially if investors approach and pass the 50% stake threshold. You could potentially even be giving up actual ownership of the company.

Before pursuing venture capital funding, ask yourself some of these questions.

  • Are you OK with giving up some control of the company?
  • Would you be OK with losing ownership of your business?
  • Does your venture capital firm have good connections?
  • Can you take direction from people outside your team?

Crowdsourcing

Crowdsourcing business funding has gained a lot of popularity over the past decade. The model is simple, show the world your idea and ask for capital in exchange for benefits to people funding you once the ball is rolling.

There are several different platforms one can use when in pursuit of crowdsourcing your capital injection. Kickstarter and Indiegogo are two very popular platforms startups can look at. These are rewards-based crowdsourcing models, offering investors perks and benefits for investing in you.

Projects on these sites (and others) will also have two additional options. The first is, “all-or-nothing,” this sets a deadline for you to reach your goal. If you fail to reach your goal in time, you lose it all and your investors get refunded. The other option is to keep what you raise. In this case, you’ll keep the raised funds.

One of the advantages of crowdsourcing money for your startup is you won’t need to worry about giving up any control of your business. You also have the possibility of your message being spread by investor’s social media accounts. Comments sections on pages can be used to receive feedback that you can take or leave.

This model, however, does require a significant amount of time designing and managing your web page that’s hosting your call for funding. With crowdsourcing, you do also run a slightly higher chance of having your idea stolen. Idea theft comes with the territory of finding funding in general, but, with crowdsourcing, your idea has a dedicated web page with a video for the world to see.

Bootstrap Funding

The two previous options depend on finding other people to fund your idea. Bootstrap funding requires more time looking at your model and applying cost optimization. When using this, you will be seeking and receiving minimal outside sourcing of funds, if any at all.

Bootstrap funding is an inherently more grass-roots approach. When looking at your expenses, if it requires more money than what you have coming in, you need to trim that expense or remove it altogether.

The bootstrap model does mean you may have less money to work with in the beginning stages of your startup. Mistakes will also be more detrimental because your dollars need to be working at maximum efficiency.

However, when using the bootstrap funding model, you are in total control of your business. There will have no unwanted outside influence, no changes to your company that you don’t want. You also get to have far more control of money coming in; you don’t won’t be cashing out to investors.

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