Funding a new venture. Self fund? Raise capital? Or something else?

Often, it is difficult to raise capital for early stage products since there is low confidence in your product, it has no data to go by and no proof that it will obtain any market share. There are just too many unknowns...

On the contrary, how do you get your product to market without funding? There are costs involved in building your product, marketing and distributing it, and they need to be covered beforehand. So, what are your options?

Option 1: Put a lot of time and effort to pitch your idea and try to obtain any amount of funds possible from people that you know (they may be willing to give you something or at least listen to you) and try some luck with kickstarter or crowdfunding programs to cover the costs of the first step.

Chance of success: Low

Risk: Low

It's important to realise that an idea only is not worth anything! It has potential, possibly, but without execution, it is worthless. To increase your chances of this working, try to show something more than just a pitch, have some sort of demo.

Pros: Could obtain some funds for first steps without heavy investment.

Cons: High risk of spending lot's of time and effort with little or no return. Remember, time and effort also have value, not just money.

Option 2: Take a personal risk and leverage credit. Banks and other financial institutions will not fund early business ventures. Therefore, the only option to obtain credit is if you put your personal assets as collateral for a loan. This is highly risky because if your business venture fails or simply takes longer to generate profits than anticipated (a common thing with startups) then you could end up bankrupt yourself.

Chance of success: Moderate

Risk: Very High

This route is possible for existing businesses that are funding a sandbox venture. In fact, it could be highly advantageous for them to take this route since it has its tax benefits and doesn't immediately affect current cashflow. Also, existing businesses will get loans on more favourable terms (if they are in a strong financial position). Taking this route would not be advisable for founders and new companies.

Pros: No need to pitch to many people and spend lot's of time.

Cons: Very high risk, and your business plan needs to be accepted by the lenders.

Option 3: Partnership. Find some people who can help you to raise funds. This could be partnering with a company where you can build your startup using the companies resources. This is a great option if you require high capital expenditure of equipment. Typically, the company can allocate a certain budget to fit your project then help you out with testers and initial users by utilising the customer base of the existing company.

Chance of success: Moderate

Risk: Low-Moderate

It's important that you find the right company to partner with, explain your project clearly and how the company can benefit from this product. This approach is similar to a job interview whereby the company should be incentivised to partner with you before you speak with them.

Pros: Access to more resources. More clear path to market and greater chance of success, especially if your product is niche and the company works in this niche.

Cons: Very low ownership. Companies will typically take the majority (if not all) of the work that you do and heavily influence the decisions. You will be more like an employee/project lead, not a founder. Also, it is difficult to partner with such companies without already being in their network.

Option 4: Find a co-founder to build something first, at least a proof of concept, before showing to investors. This is most probably the safest option out of all. If done right, it will spare you of half the tasks required to build a product and get a business venture rolling. It's also highly advantageous to onboard people who have strong connections in the industry as this will help with fundraising and establishing in the market.

Chance of Success: Moderate

Risk: Moderate

This approach is hugely based on the human factor. If done right, it has a high chance of being fruitful for all, but if done wrong, it becomes a high risk and could be very problematic.

Pros: Less initial investment, saves time and money at the start. Can compliment each other and build quicker.

Cons: You will lose a lot of equity at the early stage and it still may not work out. A co-founder could be as much problematic as helpful.

Option 5: Build lean, step by step and raise only when you absolutely have to, this will typically be to scale. This option is more time consuming and requires great patience and a lot of effort. You will have to learn a lot, take hardships and bounce back. The approach will be to balance building a product with building an audience for the product and when it comes time to raise, you will have something tangible. Consider using barter transactions by leveraging your abilities, assets or network. All these things are valuable and you will need to use them in order to achieve traction in the market.

Chance of success: Moderate - High

Risk: Low - Moderate

In terms of risk and chances, this approach has effects beyond just this business venture. The lessons learned and experience gained could open more opportunities that were not possible before, yielding greater returns.

Pros: A real challenge and highly develops you as an entrepreneur. Opens the opportunities beyond the monetary.

Cons: Difficult and unclear path most of the time. Involves committing personal funds.

This list is not exhaustive, there are more options. We just present the more popular and most feasible today. It doesn't factor any schemes, accelerators, incubators or other program designed to aid with startup development. However, the approach there would be similar to some of the options discussed above.

Key things to take away: Consider your industry and current position. Very important to evaluate yourself honestly to see what you can and can't do. Decide what's more valuable for you in the current moment, time, money, effort etc. What amount of risk you can tolerate and what you are prepared to invest yourself. We understand that it may be difficult to self fund a project or build an initial product, but it's important to invest as much as you can yourself. If you put your own skin in the game, it will make more people trust you as opposed to not putting any of your own funds. If you don't invest anything, why should anyone else?