There is constant buzz about ‘unicorns’ and sky-high valuations, but raising venture capital is not the only funding option for entrepreneurs — or necessarily the best one. In exchange for funding, entrepreneurs lose some equity and decision-making power and there is an immense pressure to scale quickly and go public or sell.
That was the conversation topic at the When Venture Capitalits Aren’t the Right Option panel at the first day of the 2018 Forbes Under 30 Summit in Boston. Lynn Perkins, the founder and CEO of UrbanSitter, moderated the conversation with Janis Bowdler, the president of the JPMorgan Chase Foundation, Evan Cohen, the senior director of blockchain and crypto investing at Indiegogo and Lorine Pendleton, an angel investor at Pipeline Angels and Porfolia.
Here are three alternatives to venture capital funding to consider as an entrepreneur:
A Community Development Financial Institutions Fund:
A Community Development Financial Institutions Fund provides access to capital and services for local residents and businesses to increase opportunity in low-income communities. JPMorgan Chase recently made a $150M commitment to economic recovery in Detroit and one of their initiatives is to accelerate economic recovery by investing in small businesses, says Bowdler. They worked with the Kellogg Foundation to launch the Entrepreneurs of Color Fund, a Community Development Financial Institutions Fund that is helping Detroit-based entrepreneurs of color. JPMorgan Chase has also opened Community Development Financial Institutions Funds in additional cities.
There are micro-lending loans as small as $5K to up to $1M depending on the funding requirements of the particular business, says Bowdler. The financial institutions are looking for businesses that support the community, create jobs and are growth-seeking, she says.
Bowdler hopes that more companies will open Community Development Financial Institutions Funds. “ My motto is we like to be the first, but we don’t like to be the only. A big part of our strategy moving forward is bringing other large corporates along with us,” she says.
An investment group:
A group of investors contribute to an investment group. Portfolia’s individual investors are limited partners and the company’s general partners make the investment decisions, according to Pendleton. Portfolia-backed entrepreneurs get financial capital as well as both social and human capital, says Pendleton.
“It’s great for entrepreneurs to be part of an investment group. Anyone can write a check, but you really want someone who is going to believe in you, and invest in you and also open up their networks and expertise to help you,” she says. Portfolia funds companies that have a predominately female user base and their model was designed to appeal to female investors, although men can also invest.
“ I think the new women’s movement is going to be a financial one. Women are going to be engaged in using their money not just for philanthropy, but also to invest in what they want to see in the marketplace,” says Pendleton, “That takes women coming together and pooling their resources much like men have been doing for centuries.”
Crowdfunding:
Crowdfunding platforms enable a large group of people to invest small amounts of money to fund a business venture. Indigogo’s goal is to help community members come together to help fund local entrepreneurs and businesses that will benefit the community, according to Cohen. “We make it really easy for any company to raise money from their community, activate the Indigogo community and essentially bypass that traditional funding route, whether that’s banking or venture capital,” says Cohen.
Research has found that women have more success with crowdfunding than men, in part because women generally have stronger and larger social networks, according to a 2018 report from National Women’s Business Council. It holds true on Indigogo: 47% of successful campaigns are led by female founders, says Cohen.
