Startup Funding

You have a great idea for a new consumer product or medical device, now what’s next? As an entrepreneur, raising capital can be one of the biggest roadblocks to launching your product. To set you in the right direction, we collaborated with startup financing experts to create this guide to help navigate the major funding sources, enabling you to determine which options are best for your new business.

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1. CLICK TO BEGIN » T H E STA R T U P F U N D I N G G U I D E : How should you fund your startup? VOL 1 NO 4 WORRELL INFOGRAPHIC
2. © 2014 WORRELL INC. @WORRELLDESIGN WORRELL.COM As a startup, raising capital can seem like one of the biggest roadblocks to launching your product. Here's a guide that can help you navigate the major funding sources and determine which options are best for your new business.
3. BOOTSTRAPPING The use of personal savings or early cashflow to fund a startup rather than seeking external capital in the form of investments and loans. 1 OF 7 MORE CONTROL Autonomy to grow your company at your own pace and keep greater control over its trajectory. MORE EQUITY Without investors, you’re ultimately able to maintain greater ownership in your company. INCREASED FLEXIBILITY The ability to change your direction on a moment's notice, without waiting on the approval of other investors. PROS CONS PERSONAL RISK If you personally shoulder the finances of your startup, all costs and losses become your responsibility. SLOWER GROWTH Cashflowing your startup can result in resource constraints that may ultimately slow growth trajectory of the company. LACK OF SUPPORT You may miss out on access to knowledgeable investors and their diverse networks and connections.
4. CROWDFUNDING A new form of financing that enables startups to raise funds through small contributions from a large number of individuals via an online platform. 2 OF 7 PROOF OF CONCEPT A successful campaign serves as validation that there is demand in the market for your product or service. FREE PUBLICITY Crowdfunding gives you free access to media outlets that may be willing to publicize your campaign. MAINTAIN OWNERSHIP This influx of early-stage funds may delay or dissolve the need to raise cash from other investors. PROS CONS LIMITED APPLICATIONS This works best for raising small amounts from many people, excluding some service and large equipment-based businesses. EXTERNAL PRESSURES Legal issues can arise if you are not able to meet expectations on when your product ships. RISK OF EXPOSURE You are required to disclose product details, potentially giving competitors information about your business.
5. ANGEL INVESTMENTS Individuals who contribute personal capital to an early-stage startup in exchange for equity in the company. 3 OF 7 FLEXIBLE CAPITAL Investments may range from a few thousand dollars to millions, potentially providing most of your startup capital. ODDS OF SUCCESS Angel-funded firms are more likely to stay in business longer, experience significant growth, and see higher rates of return. CONNECTIONS Angel investors are often experienced in the field and can offer their expertise. PROS CONS LIMITED FUNDS For additional funding, your angel may be tapped, forcing you to raise money through traditional VC firms. LOSS OF CONTROL Angel investors may expect to play an active role in the decision-making process in exchange for their investment. LOSS OF EQUITY Angel investors take ownership stake in your business, ultimately decreasing your share in the event of an exit. 1 http://hbswk.hbs.edu/item/6347.html?wknews=041910 Harvard Business School Study: 1
6. VENTURE CAPITAL Venture capitalists (VCs) work for a corporate entity, investing money on behalf of the individuals or institutions they represent. 4 OF 7 MORE CAPITAL VC firms provide large influxes of capital, often with a minimum investment in the millions. MULTIPLE ROUNDS Unlike angel investors, VCs often reserve additional funds for follow-on investment rounds. CONNECTIONS VC firms have vast experience, giving them invaluable insights into what will lead your organization to success. PROS CONS TIMEFRAME VCs expect a return on their investment during a specified timeframe, putting pressure on your startup to turn a profit. LOSS OF CONTROL VC firms request a controlling stake in your company along with board seats, sacrificing equity and autonomy. DELAYED SUPPORT VCs often do not invest in early-stage companies, but wait to invest once a startup has a proven track record.
7. STRATEGIC INVESTMENTS Strategic investments, also known as corporate venture capital (CVC), are investments made on behalf of a parent company. 5 OF 7 MORE CAPITAL CVC and other strategic investments tend to be much larger than angel and some VC deals. RESOURCES Startups may benefit from the investing corporation’s resources in commercialization, manufacturing and marketing. EXIT OPTIONS Strategic investors provide an exit strategy, such as licensing or acquisition, early in the life of a new business. PROS CONS TIMEFRAME Corporations are typically slower than VCs in finalizing deals, so they may not be ideal if you need quick access to capital. LOSS OF CONTROL An investing company will often lock in a technology license or purchase option at the onset of your relationship. DISSUADES OTHER INVESTORS Accepting CVC from one company may close doors to resources that could be secured from other interested investors.
8. INCUBATORS & ACCELERATORS Accelerators and incubators aim to increase the success of startups by offering capital, work space and mentorships in exchange for equity. 6 OF 7 VALIDATION These programs can provide the first signs of market validation, along with the momentum and support needed to attract additional funds. OFFICE SPACE These programs generally provide shared office space and co-working opportunities for your startup to use. MENTORSHIP These programs are often led by proven entrepreneurs whose shared experiences can increase the odds of your success. PROS CONS LESS FOCUS At an incubator or accelerator, your startup may be one of many, limiting the attention and support that other forms of investments may provide. RELOCATION REQUIREMENTS The caveat to office space is that you may be required to relocate if accepted to one of these programs. LOSS OF EQUITY In exchange for capital and mentorship, you will be required to turn over a small amount of equity.
9. GOVERNMENT GRANTS A financial award that is given to a startup from federal, state, county or local governments, private foundations, or corporations. 7 OF 7 MULTIPLE OPTIONS In some cases, you can apply for multiple grants within a year, giving you multiple funding opportunities. NO REPAYMENTS A grant is a form of non-dilutive financing and is generally given without the obligation to repay. CREDIBILITY Winning a grant can serve as a stamp of credibility that can be used as leverage when approaching other investors. PROS CONS COMPETITION There are often hundreds of startups applying for a single grant, which can make it difficult to obtain one. APPLICATION PROCESS Applying is a very time-consuming process, requiring a significant amount of planning, writing and research. GOVERNMENT OVERSIGHT A grant may require the recipient to perform in accordance with strict regulations.
10. © 2014 WORRELL INC. @WORRELLDESIGN WORRELL.COM Ryan Broshar Confluence Capital Partners Patrick Meenan Arthur Ventures Toby Nord Carlson Ventures Enterprise at the University of Minnesota Justin Porter Venture Center at the University of Minnesota A special thanks our distinguished panel for sharing their expertise on this subject matter:
11. © 2014 WORRELL INC. @WORRELLDESIGN WORRELL.COM