Creative Ways to Capitalize Your Startup
May Samali is an Associate at the Urban Innovation Fund, a venture capital firm that invests in transformative urban technology. Previously, May served as a Director at Tumml, an urban ventures accelerator. Reach her via Twitter @maysamali.
May Samali is a “PowerBoost – Capitalizing Underrepresented Techpreneurs” panelist at the 2017 Future of Wealth Summit.
Investors are pumping more money into more startups than ever before. But this growth in funding is skewed away from underrepresented entrepreneurs. In fact, women and people of color currently receive less than 3% of all venture capital (VC) money in the U.S. So where should underrepresented founders look to for funding? Here are three strategies entrepreneurs can use to capitalize their startups in the early stages.
One of the best and most overlooked forms of startup capital is revenue. Founders should prioritize revenue generation because it is the cheapest capital approach to proving the existence of a viable business model. Revenue can fund a business’s operations and expansion, without diluting the founder’s ownership. Too often, fundraising is conflated with business success. Instead, founders should ignore the fundraising hype and focus on building a real business with real customers and traction. Strong revenue growth also improves a startup’s odds of capturing investment dollars later down the track.
Crowdfunding is another great way for startups to raise money in a non-dilutive way. Platforms such as KickStarter or Indiegogo enable entrepreneurs to quickly evidence demand for their product or service. Crowdfunding works well for startups that have high upfront capital expenses or those fundraising for a specific project. For example, the Town Kitchen – a community-driven food business in Oakland, Calif. – ran a successful Indiegogo campaign to raise money for its first commercial kitchen. Crowdfunding is also a good option for consumer-facing products or as a pre-sales target for new inventory. By democratizing access to capital, crowdfunding is particularly helpful to underrepresented founders who traditionally lack access to wealth networks.
Target funders that open doors
Founders should focus on securing early-stage funders that are willing to take an early stage bet and act as network builders. In addition to providing seed capital, accelerators such as 500 Startups and micro-VCs such as the Urban Innovation Fund can help underrepresented founders expand their networks and provide industry-specific access to funders. Underrepresented founders – who face unconscious bias and discrimination during the fundraising process – should also target accelerators or funders with a strong track record of supporting diverse entrepreneurs. For example, 71% of the companies incubated at urban ventures accelerator Tumml have a woman or person of color on the founding team.
Capitalizing a startup is hard work. But it is particularly difficult for underrepresented founders who are up against additional barriers. Entrepreneurs should focus on generating revenue, exploring crowdfunding, and targeting funders that open doors. Also, if you’re a founder building a solution to a tough urban challenge, we (at the Urban Innovation Fund) want to hear from you!