One of the biggest myths in the small business and entrepreneurial world is that you need funding to succeed. The fact is, less than one percent of businesses are funded by angel investors and only 0.05 percent get venture capital funding. Most businesses will never qualify for this type of funding and very few will ever receive it, which has small business owners like Christina Stembel of Farmgirl Flowers chanting that you don’t need funding to find success. Here is a look at your alternatives and why pursuing them is a better idea than chasing after that elusive angel or VC funding.
Personal Savings and Credit
The same research that produced the statistics above found that 57 percent of businesses are funded by the entrepreneur’s own personal savings and credit.
Family and Friends
Another 38 percent are funded with money from family and friends. Not all of us have rich connections, but a handful of smaller amounts can add up. Also, think of it this way – if you can’t convince your inner circle to believe in and invest in your business, why would anyone else invest?
The Small Business Association offers a variety of loans. On the website, you can explore your options for general loans, microloans, disaster loans, and real estate/equipment loans.
Traditional and Alternative Lenders
Traditional lenders also offer loans for small businesses or lines of credit. You can check with local banks and credit unions, or search online for national lenders. A variety of alternative lenders also offer small business funding, like PayPal’s Working Capital program.
With the passage of new Regulated Crowdfunding rules, small business owners now have access to two forms of crowdfunding: rewards crowdfunding on sites like GoFundMe and Kickstarter where people get a set reward for a donation, and equity crowdfunding, where people invest and get equity in your company.
Cash Flow or Revenue
If you’re starting to turn a profit, you can push that money back into the company to fuel growth.
Accelerators and Competitions
Accelerator programs will help build your business and provide funding for that growth. Also, don’t neglect startup competitions, whether small and local or large like UC Berkeley’s LAUNCH.
Pursuing alternatives to VC and angel funding is beneficial for a number reasons:
- You’re working on your business instead of wasting time pitching and fundraising.
- You learn the value of money and the importance of good money management.
- You can explore creative ways of building your business, such as low-cost marketing.
- You don’t have to answer to investors who want constant justifications or may want to micromanage.
The majority of the successful small businesses and startups you see today got there without funding from VC and angel investors. Don’t underestimate yourself – you can do it too.