Finding the right route to business funding
We’ve all heard the phrase “Time is money.” It’s generally accurate, but consider an alternative proposition: Time is more valuable than money. Money can multiply, but time can’t.
Beyoncé’s empire wasn’t built in a day and a business doesn’t usually launch in 24 hours either. Being an entrepreneur is an exacting and time-consuming effort. There are products to create, resources to purchase and people to hire, to name a few tasks on the to-do list.
Excel Capital Management cites research in 2014 by the Global Initiative for Women’s Entrepreneurship Research at Babson College indicating that less than 3 percent of women small business owners were able to secure start-up capital through private investors. In addition, venture capitalists typically invest in start-ups with similar backgrounds or partners. Although the Women’s Business Ownership Act of 1988 outlawed discriminatory practices such as male co-signer requirements for business funding, approval rates for women-owned businesses still lag as much as 20 percent behind male-owned businesses.
As a result, enterprising women are turning to other resources, websites and alternative ways to finance new and expanding businesses. Here are some ideas that will save entrepreneurs time when researching crowdfunding websites and alternative funding ideas.
A crowdfunding campaign is a methodical and focused approach to funding in a concentrated amount of time, according to the online publication Women2.0. This concept has grown in popularity over the last few years and a plethora of companies offer crowdfunding services.
CircleUp is a crowdfunding site with the mission “to help entrepreneurs thrive.” They boast they are the largest online marketplace for investing in innovative consumer and retail companies. These are companies that sell products you can see, touch and taste. Not only does this site assist in fundraising, it also provides entrepreneurs with data and feedback from investors during the process. The CircleUp website has information for the entrepreneur and also walks the investors through the process and what they have to offer, connecting the investor and the entrepreneur by acting as a middleman.
Through the firm with the simple name Crowdfunder, entrepreneurs offer equity to accredited investors. In Crowdfunder’s blog post, “The Ultimate Guide to Startup Funding,” they describe themselves as a good platform to raise funds quickly and note that crowdfunding serves as a marketing tactic, raising awareness for a company among investors and users. This site offers a wealth of information and tools for the business owner, including advice on building a profile, investor pitch deck templates and term sheet examples.
A unique feature Crowdfunder offers is the VC Index Fund, a diversified fund for early-stage venture capital deals that is updated quarterly. An early-stage startup that has received funding from one of Crowdfunder’s indexed venture capital funds is automatically eligible for a $100,000 investment from the VC Index Fund.
If you’re the creative type and not selling a retail product, Kickstarter may be a better fit, with 15 different categories in the creative field ranging from fashion to comics and technology. Their mission is “to help bring creative projects to life.” In 2015, they became a Benefit Corporation, which means they are a for-profit that has to positively impact society. The entrepreneur can set up a fundraising campaign and ensure 100 percent ownership throughout the process. There are no financial returns, equity or loans involved. If the campaign is successful, Kickstarter applies a 5 percent fee to collect funds, and payment processing fees range from 3 percent to 5 percent as well.
Other alternative funding options are available if crowdfunding is not the route you want to go. One option is asset-based lending through banks and independent finance companies. With asset-based lending, no personal collateral is required. For example, Factor Funding Company relies on business assets, equipment, computers, vehicles, inventory and accounts receivable as collateral. Typically, asset-based lenders advance funds based on an agreed percentage of the secured assets’ value. This may be 70 percent to 80 percent of eligible receivables and 50 percent of inventory. This route is a good option for an established business that is seeking expansion and needs working capital. Rate structures depend on the industry, volume of borrowing and days outstanding; personal guarantees are typically required to establish validation of statements and documents.
The #Girlboss™ Foundation supports female entrepreneurs by giving grants on a biannual basis. Each grant beneficiary receives project funding for $15,000 and exposure through the #Girlboss and Nasty Gal social channels as well as local and regional press. The foundation supports design, fashion, music and the arts and strives to support women and their futures. Award criteria include demonstration of creativity, business acumen, ability to plan and achieve goals in a 12-month time frame.
With these concepts and a bit more research, women entrepreneurs should have a clearer idea which path would be best for the current stage of their business. It looks like a good time to check “gain funding” off that long to-do list. HLM
Sources: blog.factorfunding.com, circleup.com, crowdfunder.com, entrepreneur.com, entrepreneurship.org, excelcapmanagement.com, gaebler.com, kickstarter.com, and women2.com.