Startups need money to, well, startup. In order to get money, fundraising is a likely path that most startups will travel. There are many different funding sources available, and the usefulness of each one varies depending on the stage of the business.
Some common fundraising sources include:
Founder Capital: These are the founders’ own funds. The founder invests in his or her own idea at the initial stages of the business.
Friends/Family: This is usually the first outside money available. A business will take these funds in an attempt to build out its product/service.
Angel Investors: Typically, angel investors are high-net-worth individuals. They will invest in attractive opportunities as a part of their alternative investment portfolio.
Accelerators: Accelerators provide seed capital, perks and benefits, office space and some form of a structured program that sets up an early-stage business for growth. Some have larger funds that can provide follow-on funding to their existing portfolio companies. Alternatively, they may opportunistically invest in attractive deals outside of their portfolio.
Venture Capital: These are larger scale checks that fund companies that have their product/services proven in a market. This funding facilitates growth and scaling.
Private Equity: Private equity investors are later-stage ones, and they can provide an opportunity for employees and earlier-stage investors to exit their positions.
[Editor’s Note: Scott Bernstein tells us “How to Get Venture Capital Funding” in his article.]
When considering different sources, founders should consider: How much strategic value is this investor going to provide?
At each level of fundraising, the company must make certain decisions. It must decide if the equity it is giving up is worth the capital contribution. Further, the company has to evaluate whether the investment it is receiving is strategic, or “smart money.” Or, what additional value does your investor bring your business aside from the capital?
Accelerators are far more than just investors, perks and mentors to help guide your business’s growth. They are true innovation ecosystems. Adding value other than capital is a huge advantage.
These mentors have built and sold venture-backed businesses. They have taken companies public, been enterprise executives and more. Consider the value of adding these individuals and their combined expertise in growing a business. That alone is far more valuable than other fundraising sources.
Also, consider the networks of these mentors. Such networks provide a massive database of potential funders, customers, employees and more.Consider the value of adding these individuals and their combined expertise in growing a business. That alone is far more valuable than other fundraising sources. Click To Tweet
Accelerators provide businesses with an added support system for growth. Solid Accelerator programs are usually behind urban entrepreneurial ecosystems that develop quickly. Consider accelerators as the center of gravity for innovation environments.
Accelerators have innovative co-working spaces to house their business operations. They have non-profit organizations. These nonprofits can provide entrepreneurial non-dilutive grants focused on economic development. What else do they provide? Larger scale investment capital options may be available. Customers to pilot products and services. Community from the surrounding startups- and much more.
One thing that can be tricky for startups is testing out their product/service in new markets. This is a great reason to leverage an Accelerator, especially if the founder is coming from out of state. Capital Innovators has global connections, but their ties to St. Louis are very strong. Their local connections and resources allow the owner to test their business in a new market. This results in invaluable exposure to new customers.
[Editor’s Note: For more information on the above topics, please see our article “Private Equity, Venture Capital and Angel Investing-How Are they Different?”]
As shown, there is a lot to consider when a company is looking to raise investment. It’s essential to consider the type of partner you want to have as an investor. Accelerators have become one of the most strategic and valuable investors that a company can ask for. Every investor source has its place at different life cycles of a business. However, it’s hard to come by an investor source that has as many resources and connections as a top-notch Accelerator.
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