Debt versus equity When do non-traditional funding strategies make sense

Debt versus equity When do non-traditional funding strategies make sense

Every year, the United States creates more new businesses and unicorns than any other country on the planet, but 90 percent of them fail, with cash flow being a key issue. When it comes to raising capital for a new firm, entrepreneurs presented with a tangle of alternatives, with the majority opting for equity rounds. There is definitely a lot of money to rise in venture capital, and most tech entrepreneurs will gladly accept it in exchange for stock. 

This may work for some, but far too frequently, entrepreneurs find themselves diluting their stock to unrecoverable levels rather than pursuing other funding choices, such as borrowed capital, that allow them to keep their firm.

Despite the fact that the VC floods of 2020 will create an environment with apparently unlimited equity, entrepreneurs and founders must recognize that there is no one-size-fits-all methodology for raising finance. Debt capital, or cash obtained via the use of a loan, is an alternative that entrepreneurs should examine. Understanding the true cost of venture finance and when it makes more sense than standard equity requires knowing what you and your company want to accomplish.

Today, there are two types of startups: those that want to attempt something new and those that want to make things faster, cheaper, or easier. The first kind includes Facebook, Twitter, and Instagram, which did not exist prior to the internet. Discount airlines, mobile phones (not smartphones), and integrated circuits are all instances of the “faster, cheaper, simpler” category, as they simply replaced incumbents.

I commend many entrepreneurs for wanting to be the next “try something new” success story. If you succeed in carving out your own market, you will be on your way to being a successful entrepreneur. It is generally unrealistic and distracting unless your main aim is to get famous. People often believe that creating a new category is less dangerous than disrupting an existing one. However, patience and planning may get you where you want to go as long as you are actually faster, cheaper, and simpler.

There are varieties of finance tactics that work best for your aims, just as there are a variety of market approaches. Landing investments from top VC firms has its advantages, and it is a fantastic route to go if you are a small business trying to carve out a niche and require validation and expertise. 

These companies bring in trusted advisors that are laser-focused on growth and have the resources and knowledge to navigate the choppy waters of category development.