From bootstrapping to venture debt, navigating the world of startup financing can be a daunting task for founders. With its array of esoteric terms like "rounds," "angels," and "accelerators," it's easy to get lost in the weeds. However, understanding startup funding sources doesn't have to be complicated. There are tried-and-true methods that have helped propel some of the world's most successful companies to the top.
Bootstrapping Your Startup
When you're ready to bring your app startup idea to life, you'll likely need funding – and for many founders, that means using their own financial means to grow their business. This approach is known as bootstrapping.
What is bootstrapping?
Bootstrapping your startup means using your own financial means to grow your idea into a viable business. Many founders have no choice but to bootstrap their company due to sheer necessity.
Advantages of bootstrapping your company
The big upside to bootstrapping is that you retain full control over your startup. Once you secure funding, investors typically have a say in your business and you may also have a formal board to answer to. On the other hand, bootstrappers miss out on valuable mentorship and industry connections that come with funding models like accelerators and angel investors.
Exploring Alternative Funding Sources
When the time arrives to seek outside funding, there are several sources of startup funding to consider.
Grants and Subsidies
Startups may be able to receive funding from government agencies in the form of grants or subsidies. Unlike a loan, a grant does not need to be paid back, but startups are legally bound by a grant's terms and may have to repay it if the criteria is not met.
Government grants typically fund specific projects or activities versus everyday operational costs and are often tied to social causes or certain industries. Startups may also be required to match the grant (or a portion of the grant) with their own investment into the approved project.
Accelerators
If you're an early-stage founder with big plans to scale quickly, you may want to consider a startup accelerator for pre-seed or seed funding. Accelerators first entered the startup ecosystem with the launch of the Y-Combinator (YC) program in 2005. Since then, others like Techstars and 500 Startups have had similar results.
An accelerator offers two critical things for new startups and founders: preliminary capital and mentorship. If you're admitted into an accelerator program, you become part of a select cohort that gets a crash course in funding, sales, and growth over a few months. Your startup may receive a nominal investment (around $100,000) in exchange for equity in your company.
Just as important to the success of an accelerator program is the mentorship it provides. Accelerators connect new founders with seasoned startup founders and funders. Who better to help you start a company than someone who has successfully accomplished it (often multiple times)? Other key benefits are building a valuable support network of like-minded entrepreneurs and exposure to investors, particularly those that specialize in early-stage startup funding.
Conclusion
With the rise of innovative app startups, finding the right funding source is crucial for success. Whether you choose to bootstrap your company or explore alternative funding sources like grants and accelerators, understanding your options can make all the difference.