There are countless ways to fund a business, each with its own benefits and disadvantages. If you're struggling to find the right financing path for your business, it often helps to hear from other founders who have been through it before.
Below, four entrepreneurs share their insights on how they chose their business funding strategy, and whether they'd do things differently if they had the chance.
Bootstrapping + startup competitions
Dan Karr, founder and CEO of ValChoice, chose to bootstrap his company rather than pursue outside investment. He and his team self-funded, but they also applied to and won several startup competitions that granted both cash and in-kind awards. From there, they reinvested 100% of the revenue from customers back into the business.
- Pros of bootstrapping: "We did not have pressure from outside investors to launch products before they were ready or to make companies with the biggest advertising budgets appear to be the best companies for consumers. Instead, we were able to develop what consumers need: true transparency into the insurance industry."
- Cons of bootstrapping: "It's hard to do. The resources available are limited and the pressure is very high because you’re betting your own personal financial security."
When asked if he'd do things differently from a financing point of view, Karr said he "would do it exactly the same way."
[Read: Should I Bootstrap or Look for Investors?]
Borrowing from family/friends
Abhi Lokesh, CEO and co-founder of Fracture, desperately needed financial backing, but the team's options were limited due to lack of experience. They ultimately received financial backing from Lokesh's father and some family friends. It gave him more motivation to succeed, "knowing that my father had so much faith in me that he invested in our company."
- Pros of borrowing from family/friends: "Our friends and family simply trusted us that we’d be good stewards of their money. While we did our best to treat the relationship as professionally as possible … it was a good feeling knowing that they wouldn’t be asking too many questions or trying to micromanage us."
- Cons of borrowing from family/friends: "The capital didn't come with industry expertise or a deep network like you’d get if you raised money from institutional investors such as venture capitalists."
Lokesh advises other entrepreneurs who are borrowing money from personal connections to "go into the situation with eyes wide open."
"Set expectations upfront about what family/friends can expect in terms of updates on your venture, a time horizon on when they could expect repayment, what sort of return they might get, etc.," Lokesh told CO—.
For us, it has always been about getting to know our audience and creating the best product we possibly can for them.
Lee Thompson, co-founder, Flash Pack
Personal fund + seed round
Lee Thompson and Radha Vyas co-founded Flash Pack with a limited personal fund for a website with ad banners and a bit of Google advertising. The duo followed up with a small seed funding round, but did not raise any other form of capital.
"For us, it has always been about getting to know our audience and creating the best product we possibly can for them," said Thompson.
- Pros of personal funding: "Sidestepping the venture capitalist model gave us the opportunity to grow organically. We didn’t pay attention to the 'rules' of running a business."
- Cons of personal funding: "Neither [of us] had any prior experience in the travel industry. We had to work incredibly hard to upskill ourselves in everything from sales to marketing, and stay ahead of our competition, [while] … getting ourselves out there and networking with our peers."
While Thompson admits he and Vyas "missed out" on the experience, knowledge and networking opportunities that come with raising investor capital, he knows they wouldn’t be where they are now without learning from their mistakes.
"Mistakes and failure are a vital part of growing a business, as long as you take the learnings from them," Thompson added.
Aggregating capital from multiple sources
Roshawnna Novellus, CEO of EnrichHER.com, relied on a decentralized approach to aggregating capital. She and her team used a combination of small business lenders, grants, pitch competitions, angel investors and investment funds.
"This approach enabled us to access capital on different terms without giving up too much control [or] dependency while on our growth journey," said Novellus.
- Pros of multiple capital sources: "We didn't rely on putting all of our eggs in one basket. Money arrived from a variety of sources at different times."
- Cons of crowdfunding: "Managing the different needs of different stakeholders. A deck that is for a pitch competition is not the same deck that is for an institutional investor. There was a lot of preparation time tied to each funding source."
"I continue to believe that our approach worked best for accessing capital from different sources," said Novellus. "The only thing that I would change is having more faith in trusting the process."
[Read: 5 Ways to Raise Money for Your Business Fast]
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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