A prominent startup is like a fancy new car — no matter how shiny or packed with fantastic features it is, you still need to fuel or charge it to get any use out of it. In the same sense, startups must raise funds to get their business up and running. Wouldn’t it be nice to have a map of places you could go to dig up that pot of gold for your business? Grab a shovel and come along! We’ve made that map for you by gathering together the top fundraising opportunities for subscription box startups to explore.
What is it? One of the tried-and-true ways of funding a startup. In simple words, a presale campaign is selling your goods before you have them ready to ship. Presale allows businesses to get the money needed for products, packaging, and logistics. Based on your pricing strategy, it can cover some of your financial needs or get your business up and running for several months altogether.
How does it work? Sounds easy enough, right? You just market your service and take pre-orders. But presale is quite risky and tricky. Firstly, set your presale goals realistically. Consider short-term and long-term business development well when you set the goals. Next, make a plan for how you are going to reach the goals. Plan your marketing, multi-platform presence, communication, and funding distribution. Finally, use multiple fitting channels to run your presale campaign so that the value of the product you offer reaches as many potential buyers as possible.
Any tips? It’s pretty different from prelaunch, where you would simply collect potential customer data and inform them when the products are available. With presale, you execute a contract with customers and are obliged to ship the promised goods to them no matter how unfavorable the conditions are for you. To avoid that situation, you need to plan your presale campaign well.
What is it? Borrowing money from a financial institution is another one of many fundraising opportunities for small businesses. If you are a sufficiently large established business launching a subscription service, you may qualify for a bank loan. Conditions will vary from bank to bank and from deal to deal, but in any case, your business plan must be detailed and viable, your credit score high, and your incoming revenue sufficient.
How does it work? The type of loan you get as well as your chance of getting one from a bank both depend on numerous factors. The primary defining factor is whether you are an established business or a startup. Typically, banks are not interested in loaning money to startups. What’s more, small businesses aren’t likely to get a loan due to the high risks and low profits associated with such loans.
Any tips? One way to get a bank loan when you are a small business startup is through the collateral of the business owner, like real estate or property. You should be careful to avoid any lenders that do not check credit scores or that guarantee approval of all applications. You’ll end up dealing with a scam company or agreeing to disadvantageous conditions.
What is it? This is one of the leading startup fundraising opportunities, involving individual investors and investor syndicates that put their own money into growing companies. Having rich experience, they look for high-potential ideas and a hard-working rockstar team.
How does it work? You can post your investment application on one of the global angel investment websites. The most reliable and popular websites are AngelList and Gust (an angel network). To qualify for angel investment, your startup must have growth potential and be attractive to investors. As a rule, angels look for five to ten times profit. When you secure angel investment, you can usually turn to your investor for mentorship, business expertise, and valuable connections. Angel investors channel their money into early-stage companies in exchange for equity.
Any tips? Avoid any middlemen offering to take over the negotiations, search for investors, business plan drafting, and pitch presentations for you. These intermediaries are often only looking to make money out of your business without caring much about what happens to it. If you are located in the US, you can look for angel investors in your area by turning to the Small Business Development Center (SBDC).
What is it? Grants are funds given to chosen businesses or entrepreneurs under certain conditions. Usually, grants are intended to help underfunded communities or fuel startups that serve a great cause. If your subscription box service wants to support a humanitarian cause, the chances are that you can apply for a grant – and that it might be one of the best fundraising opportunities for you.
How does it work? There are different types of grants out there: federal, state, local, and private. The best thing about grants for startups is probably that they do not need to be repaid. However, it’s not easy money. Here’s why: grants are usually intended for underfunded communities, humanitarian causes, specific demographic groups (for instance, single mothers, minority students, veterans, etc.), and non-profit community innovations. You’ll probably need to provide detailed and extensive reporting to the grant committee if you get a grant. As a rule, they will give you strict conditions on how the grant money is to be spent and distributed.
Any tips? Many startups wonder how to raise venture capital with grants. Firstly, you should understand that not every startup is eligible to apply for a grant, and even if you do, the competition for free money is fierce and time-consuming. Sometimes the conditions and the competition are so tough that startups turn to professional grant writers for help.
What is it? A startup accelerator is a fixed-term, cohort-based program for boosting startup development. Accelerators work with early-stage businesses and startups that already have an MVP. With the help of the accelerator, startups can get the resources (including education, access to courses, and mentorship) needed to accelerate business growth and development.
How does it work? The acceptance process is quite challenging. First, a startup needs to send in an application to the accelerator. Next, they go through the assessment process, where the accelerator checks everything from whether they fit the investment statement to their prototype and team experience. Furthermore, an accelerator interviews only a small number of the best teams. Finally, just a few startups get in based on the decision of an investment committee. As for the cost, accelerators accept startups in exchange for a cut of equity. As a rule, an accelerator program prepares the early-stage startup for the market in three to six months.
Any tips? Remember that accelerators only work with startups that have a validated MVP. To get in, you must show that you have some customers or some free users. You need to demonstrate that your product is a perfect fit for the market you’ve picked as well. Countless startups apply for the accelerator route, so the competition is fierce and the waiting list is long.
What is it? Startup incubators and accelerators are often mentioned together as similar fundraising opportunities. Accelerators accept early-stage startups that have already proven the potential of their MVP. An incubator, however, takes on entrepreneurs who have unverified business ideas. With the help of an incubator, these entrepreneurs can build their products from scratch.
How does it work? Unlike accelerators, incubators do not promise rapid business growth. They mentor and nurture startups for over a year as a rule. An entrepreneur can come to the incubator with a business idea and leave it with a product-market fit. In contrast to accelerators, incubators do not usually have a strict mentorship program and schedule. Usually, they provide support, a nurturing environment, and some office space. Pretty often, startups that are not ready to apply to an accelerator opt for an incubator. It could be an awesome place to develop and design your MVP, build a rockstar team and learn how to run a competitive business.
Any tips? Wonder what incubators are looking for? Commonly, they choose to work with startups that have a great idea for the market, even when the MVP is far from ready. As a rule, incubators have a more straightforward and less competitive application process compared to accelerators. So, if you are not ready for an accelerator yet, an incubator could be the right fit for you.
What is it? A venture capital fund is a pooled investment fund that consists of the money from investors looking for private equity stakes in startups or small and medium enterprises with great growth potential. VC funding is associated with some of the most significant business breakthroughs of the decade.
How does it work? Venture capital companies usually choose early-stage startups that work in specific market sectors. They are looking for businesses that can ensure huge returns on their investment as they grow. VC firms have a “growth at all costs” mindset, and securing their funding is the best bet for companies willing to scale rapidly in exchange for equity. Businesses funded by a VC fund also have to accept the game’s rules as set by the investor. Such companies can turn into corporations themselves with the help of VC capital. If you are a fit for VC investment, you probably already know it.
Any tips? When startups start to research how to raise funds from venture capital firms, they realize it’s not one of the easier fundraising opportunities to pursue. You should understand that investments from VCs are more of an exception than an everyday thing. If you wonder what’s wrong with scaling quickly, here’s a thought: premature scaling can kill a startup. And for some businesses, rapid scaling and constant growth are not an intended path at all.
What is it? Crowdfunding is raising money from a large number of people to finance a project. There are different crowdfunding platforms to choose from. Kickstarter remains the number one direction for all kinds of fundraising opportunities. What’s more, crowdfunding platforms are great for raising product awareness as well.
How does it work? To start a crowdfunding campaign, you need to create a project that resonates with people. Choosing the right platform is essential. There are donation-based, reward-based, equity, and debt crowdfunding platforms. Typically, you need to choose a fitting platform and create a killer crowdfunding campaign. You make your presentation, set your crowdfunding goals, and offer rewards to your investors upon project completion.
Any tips? Over 500,000 projects exist on Kickstarter alone, so your project, intro, and presentation should be outstanding to get noticed among the crowd. With crowdfunding, you can test your product idea with no investments needed. You show your product idea in the best way you can and, almost immediately, you’ll see how people respond to it and whether they are ready to support it.
What is it? Borrowing money from family and friends is a popular fundraising option for beginner entrepreneurs who lack credit history. It’s the simplest and the most flexible option for many.
How does it work? Friends and family usually know your passions well, trust you, and are ready to support your endeavors. You can set flexible terms that correlate with your business. What’s more, they are more likely to offer patience and forgiveness compared to financial institutions and investors. As a bonus, you don’t have to deal with financial institutions or banks when you turn to your close ones for money.
Any tips? This type of debt financing has a personal level on top of the financial one. To keep your friends and family on your side, set precise and transparent terms and conditions and keep emotions and personal issues away from the business. Efficient communication is vital to avoid hurt feelings, family arguments, and even lawsuits. Ask how your lenders see the money (a gift, a loan, an exchange for equity) and state those terms in your contract. Keep business and personal relations separate for everyone’s sake.
Let’s recap what fundraising opportunities a subscription service startup can explore: presale campaigns, bank loans, angel investment, startup grants, startup accelerators and incubators, venture capital, crowdfunding, and borrowing money from family and friends. Some of these fundraising channels are better for early-stage startups, whereas others are more suitable for entrepreneurs who don’t yet have a tested MVP.
Naturally, there are more options out there, but they are not so commonly used and often not as promising. Remember: the subscription business model is trending now, so such businesses are rapidly growing. Which of them survive in the fierce competition depends a lot on funding. Startups try, lose money, and try again. The good news is that that doesn’t have to be you. Try out Subbly for free with a 14-day trial to test your business on a polished platform that customers love. Give it a go today — we can’t wait to help you grow your business!
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