So, I heard you want money...
Starting up takes resources.
- Working Space
- Supplies and Materials
- Travel and Hospitality
- Services (outside counsel, accounting, etc)
Today, we're talking about strategies for putting together those initial resources.
But first, a note about startups in general.
"Startup" in the media, has lately become synonymous with angel-and-VC-backed, quick-exit, SaaS/PaaS and consumer electronics ventures.
We think bigger than that here in Bloomington, IN. Some people bootstrap, some people do non-tech businesses, some people build businesses for the long haul...that's AWESOME, and we're talking to you, too!
How to fund your startup
- Angel Investing
- Lead-on Product Model
- Kickstarter (et al)
- Transfer to Practice
- professional Angel investor
- begging friends and family
- Often costs $10-80k
- used to build POC or prototype
- got a rich family member?
- high risk means giving up part of the company
Self-fund minimal MVP... slowly snowball earnings from MVP into product improvements and self-fund each stage of company growth.
- can be expensive depending on what's being developed
- if startup is software based bootstrapping only costs time
- requires bigger initial investment with more complicated manufacturing
- maker and 3dprinter initiatives are reducing costs
You aren't selling off your company to investors, but you have to maintain growth on your own revenue.
Lead-on Product Model
lead on product instead of MVP of core product
- small simple product
- easy to produce
- easy to iterate
- Chipotle started this way
Burritos are easy to make and easy to improve
Skip the Angels
- build a product with business loans
or personal capital
- easiest for a small MVP
- build a small customer base
You own the whole company when you go to talk to your Series A investor!
Kickstarter (et al)
- similar advantages to skipping the angels
- crowdfunds first batch of product
- inexpensive advertising
- reduces some startup costs
- product usually must be something physical
- ...but you'd better have your R&D in the bag already
- Startup as subsidiary of an existing company
- often on salary from parent company
- parent company resources (office, office supplies, advisors, marketing department) reduce costs
- parent company owns some large chunk of the startup
Transfer to Practice
TTP is when you take the product of a research grant (often, but not always a government grant) and spin it out into a startup, a nonprofit, or a community project. In other words, you take it from the lab to the real world.
- Researchers rarely want to be founders, but often don't mind advising.
- Researchers, or their parent institutions, retain most of the IP from publicly-funded research, but funding agencies try to encourage them to push it out into the world. One way to do this is via startups.
- Dedicated grants are available to help TTP happen, may offset startup costs without giving up any ownership stake.
- There is organizational overhead: you must understand the system.
- utilizes resources from existing startup
- second related or unrelated idea
- they have ideas they can fund with the payment from the first
- Virgin is an example
Bad Ways to Fund a Startup
- Asking the people talking to fund company
- encumbering yourself with personal debt
- mortgaging your house or other assets
- draining your retirement accounts
Funding Models for Startups
By Susan Sons