Funding Source Options Beyond Government Seed Money

Startups need funding to continue developing technology after the seed money is exhausted. The time until your company starts generating revenue is a vulnerable time sometimes called the “valley of death” because of the potential to run out of money. You need money for approvals, marketing, and unexpected expenses. Identify potential funding sources ahead of time, including rapidly available sources.

Funding options include:

• Angel Investors) – These individuals who provide capital to business startups must have high net worth to qualify as an accredited investor. They usually invest early in development, in exchange for preferred shares or partial ownership of the company.
• Venture Capital – VC is funds provided to a startup that investors think has long-term growth potential. The investments are made in return for significant ownership of the business. Investors look for indications that there will be a high rate of return, such as a strong market, product/service competitiveness, superiority, and innovation. Investors want to know strategies that will allow them to make a profit, such as whether you plan to sell the business or sell stock shares to the public (IPO).
• Accelerator – A group or individual that connects startups with mentors, resources, funding, and training for a limited period to advance a startup’s growth. Accelerators offer connections, advice, and acceleration of time to market. Disadvantages are that you lose some control in decision-making and the accelerator typically gets equity in your company.
• Startup Loan – Banks are more likely to lend money to companies with solid business plans, financial projections, and expense sheets. The Small Business Administration guarantees loans for some small businesses having trouble securing bank loans.
• Foundation Grants – These include organizations that raise money to help cure or treat specific diseases or groups of people. They may provide funding if your product or service potentially benefits their cause.
• Friends and Family – Think carefully about mixing business and personal relationships, since divergent goals may cause conflict and tensions and may make investing less attractive to others.
• University (or other institution) Internal Investment Funds – If you are employed by a university or similar institution, there may be internal investment funds available in exchange for equity in your business.
• Partner with an Existing Company – Many biotech startups partner with established corporations that have an interest in the product being developed. They may buy out the company after the product is successfully developed. This is common practice for Pharmaceutical companies.

(Adjogatse 2022; Excedr 2022)

To Make Your Business Attractive to Investors:

• Find ways to gain investors’ trust in your ability to succeed and in your management team. Show your ability to inspire others and execute plans.
• Show progress in the milestones that are most important to your potential investors. These are often milestones that reduce risk or bring in money.
• Avoid family or other non-accredited investors who may need to get their money back for personal reasons when it might hurt your business.
• Seek clear ownership of your intellectual property (IP) through patented technology. Avoid infringing on the intellectual property of others.

(Castrillon, 2019; Morgaine, 2016)