Alternative Funding Sources

Entrepreneurs are notoriously possessive and most don’t want to give away either control of their business or even a piece f the action.  And if you don’t need to do that  – then you certainly shouldn’t.

But if you need funding to grow your online business, and you either can’t or don’t want to use any of the options we’ve discussed so far in previous articles, then it’s time to look outside the box.

Once again, this piece comes with a health warning and is not designed to tell you everything there is to know about alternative funding sources – just some high-level thoughts that might whet your appetite and inspire you to look further.

So in this article, we’re going to look at Business Angels and Crowdfunding.

Business Angels or ‘Angels’ as there are known in the business market come in many guises.  They can be individuals who may be friends of friends looking to park some money for a better return than they can find at the bank or they may come in highly organised syndicates. Either way, they will likely be experienced business people themselves who have high net worth. They may be looking to invest in particular sectors or just in people they like and trust. Sometimes Angels have many investments and some just want a single opportunity they can focus on. However, they aren’t all like the people you see on Dragon’s Den!

So how do you find them?  Well, it depends on who they are. If they are friends or acquaintances of others, then it’s entirely personal contact and networking.  If it’s a more formal arrangement you are looking for, then Angels who operate together in syndicates tend to work in local communities with other like-minded people. So the ever-reliable Googling of a term such as Business Angels and your city or area will likely identify several options. Almost always your local Chamber of Commerce will have lists of Angels, and this is often the best place to start.

So what do they want? Once again this will vary. Some Angels can be very philanthropic and want to put back something into their sector or geographic area – but most are looking for a good financial return.  This can come in the form of loan interest or as an equity stake in your business. The terms of that will be for you to negotiate – but once again, if you feel out-of-your-depth in this area, look for someone to help on your side of the fence that has some experience.

Some Angels will be quite ‘hands on’ and like to provide added value whereas others will leave you to it after they’ve made their investment. What they will all want is a credible business plan showing them why you need the investment and how it will be used to grow your business. 

Crowdfunding is a whole different ball game! The most common description is:  “large groups of people combining their economic power to support an organisation, company or project they believe in.”  It’s a phenomenon that’s only really been around for businesses in the last couple of years and is still taking shape. Initially, Crowdfunding was used for people to raise donations for their cause such as to help pay for expensive medical treatment or for school fees where they had no money. In the early days, there was no financial return offered – it was just an online charity exercise.

However, this has now evolved into something much more sophisticated with several major platforms emerging for investors and entrepreneurs to come together. Crowdfunder in the USA - www.crowdfunder.com and Crowdcube in the UK www.crowdcube.com are two examples of transactional platforms that allow you to make your pitch for funding and have investors pledge funds online.  

As we’ve said in previous articles, this solution may not be for everybody but for those that embrace it, the results can be quick and surprisingly straightforward. The amounts of money involved range considerably from a few hundred dollars to six figure sums and the terms offered are yours to decide. So maybe take a look at some of these Crowdfunding platforms and read other people’s pitches to see if this might suit your business.

In the next article, we’ll be looking at the more substantial private equity and venture capital routes you might want to consider for a longer term and larger fund raising exercise.