How to Get Funding For Your Startup That’s *Not* Venture Capital
By: Gefen Skolnick and Miki Reynolds
Miki Reynolds is currently the Executive Director of Grid110, an early-stage startup accelerator and community development non-profit in Los Angeles. Grid110 partners with the Office of Los Angeles Mayor, Eric Garcetti, in order to support early-stage entrepreneurs by providing access to critical resources such as mentors, office space and community through free accelerator programs. Grid110 companies have raised $20M+ in funding and have gone on to participate in accelerators like Y Combinator, Techstars, XRC Labs, and more.
Miki has over 15 years of experience working in the tech industry wearing all the hats you can think of — leading digital projects at MGM Studios and Fox Atomic, being a community manager, launching new locations at General Assembly, and finally co-founding Grid110 in 2015.
Everyone in the L.A. tech scene knows Miki Reynolds, and it’s clear why — she creates connection among people, fosters an entrepreneurship culture in L.A. outside of the normally inaccessible Westside, and her work impacts underrepresented individuals who are often overlooked by traditional entrepreneurial ecosystems.
If you’re an LA-based entrepreneur building a business between the idea and seed stages, Grid110 has an open call for their Fall 2020 programs. Visit grid110.org for upcoming info sessions and program details. Applications are due by July 31st!.
Miki recognizes that it’s tough to raise venture capital as an underrepresented founder (and that venture is not even the route most companies should pursue) so together we compiled a quick guide to fundraising alternatives to venture capital:
There are two methods to think about when it comes to crowdfunding: equity investing platforms like Republic and StartEngine and rewards-based crowdfunding like Indiegogo and Kickstarter. Here’s a helpful primer on the difference between the two. You will need to do extensive research and prep if you decide to go this route to raise capital, as you are expected to source a percentage of the investors/donors from our own community and/or marketing initiatives. But the upside is exposure (customers, investors) and raising the capital you need on your own terms. Grid110 has known founders to raise enough capital to launch their businesses through crowdfunding and founders who have raised a seed round through equity crowd investing.
Sidenote: There have been a number of successful startups that started off getting grant money and/or launching Kickstarter campaigns, the most notable example would be Oculus, which was acquired by Facebook for $2 billion in 2014. They launched a Kickstarter with the goal of raising $250,000 and within 4 hours they reached their target! In fact, they ended up raising over $2 million dollars through their campaign alone. Eventually, they ended up raising a Series A from Matrix Partners and Spark Capital.
As an early-stage entrepreneur, getting connected to and familiar with angel investors can be critical to growing your business. They tend to be more risk-tolerant, wanting to invest at the earliest stages (often pre-product). I’ve known founders who have raised several hundred thousand dollars between a few key individual investors. While angels tend to write smaller checks than VCs (although some angels will invest at comparable check sizes), it’s critical early on to focus on the initial funds needed to build your product and validate your customer. As angels can be harder to find than VCs, here are few resources:
- Airtable of Female Angels
- AngelList: connect with syndicates and individual angels
- Arlan Hamilton recently launched the Backstage Crowd syndicate
- Femstreet is an incredible global resource/community (newsletter, slack) for all things Women in Tech/VC as well as active angels.
- #ANGELS is an investment collective founded by Chloe Sladden, Jessica Verrilli, April Underwood, Katie Stanton, Vijaya Gadde, and Jana Messerschmidt in 2015. Their mission is to get more women on the cap tables of successful startups.
- F7 is another investment collective of seven female leaders who met during their tenure at Facebook.
Many think that you have to be a non-profit to be eligible for a grant, but the federal government, private foundations, and corporations alike are providing non-dilutive grant funds as an option to help founders grow their businesses. Successful founders like Sarah Blakely and Emily Weiss have created grant programs as a pay-it-forward gesture to up-and-coming entrepreneurs. There has been a surge in large corporations pledging millions of dollars in support through grants in recent years.
Where to find grant applications:
- iFundWomen has ongoing grant campaigns
- PayPal, Instagram, Lowe’s recently announced grant initiatives
- Fundera’s Best Small Business Grants
Small Bank Loans
Startups often overlook traditional lending options because they may not qualify, but depending on the history of your business, this could be a viable option. The best resource for learning more about small business loans is to connect with your local Small Business Development Center (SBDC) and Business Source Centers. Not only can they advise you on the best options, they also offer free 1:1 advising (often with multi-lingual support). These centers have been crucial during COVID-19, providing support and information on relief funding options.
Another option to explore are Community Development Financial Institutions (CDFI), which are mission-driven financial institutions aimed at economic growth for underserved communities.
The ability to pitch successfully shows that you can clearly articulate the problem you’re solving, your solution, and your value proposition. Why you, why this, why now. At Grid110, we focus founders on crafting a 2-minute pitch in our program because it creates a solid foundation for pitching to investors, customers, partners, future hires, and more. We’ve seen several of our founders be successful in pitch competitions, winning tens of thousands of dollars in (equity-free) money, exposure, investor intros, customer intros, and more. While COVID-19 has limited the in-person nature of pitch competitions, the rise of virtual competitions has allowed organizations to reach a broader range of participants.
Pitch Deck Resources:
- Pitch Deck Hunt
- David S. Rose’s TED Presentation on Pitching to VCs
- A Look at Mint.com’s Pre-Launch Pitch Deck
- The Pitch Deck: Why You Need a Pitch Deck and What to Include in Yours, by Malcolm Lewis
Pitch Deck Design Tools:
Pitch competitions coming up:
- Women Founders Network Fast Pitch
- Top Startup Pitch Competitions in 2020
- Hatch Pitch Cyber Pitch Summit 2020
- Cartier Women’s Initiative
Other alternative models to traditional VC include:
- IndieVC: Supporting sustainable growth companies, IndieVC aims to be your last investment check with a focus on sustainable growth towards profitability and the option to buy back your equity to retain ownership.
- Inventory-based financing: Firms like Assembled Brands provide financing capital for inventory-based businesses (retail, CPG, etc).
- Revenue-based financing: Shopify, Stripe, and PayPal offer working capital options for their existing customers to borrow money and payback through a percentage of monthly revenue. Clear Banc and Lighter Capital also offer options for growth capital for digital businesses based on your existing traction.
Did we miss any other types of opportunities and resources? Please share in the comments!