It’s no secret that venture funding is fiercely competitive.
It rewards the outliers, the “unicorns,” at the expense of the many solid startups in the middle—startups that show exceptional promise and could create value for the world if only given the chance.
Many founders believe their only option is to swing for the fences and hope for the best. But securing additional rounds of venture funding is a long-shot, to say the least. Only 2% of seed-funded companies will become unicorns, which means the other 98% will be left fighting an uphill battle, despite being fundamentally good businesses.
On top of that, we’re currently undergoing a capital crunch globally, and VC firms have responded by tightening the purse strings. Global venture funding dipped in the second quarter of 2023 18% quarter over quarter, and that’s down 49% compared to the second quarter of 2022.
But VC isn’t the only option available for companies in need of funding.
Given the low appetite among VCs for supporting early-stage projects right now—and the near-impossible standards required to make it to Series B, for example—many early-stage companies will need alternative strategies to stay afloat.
Here are some innovative options that just might save your startup during the current market slowdown:
As the name suggests, you always have the option of pulling yourself up by the bootstraps and making it work until the winds shift in your favor. Bootstrapping allows you to maintain control over the business and avoid debt or equity obligations. It may include petitioning your current contacts and investors for additional funding, tapping your savings, or leveraging your own ingenuity to drive revenue growth.
Of course, bootstrapping will require putting in long hours and operating on a shoestring budget. Although it’s not easy, bootstrapping is possible, and it is a good option for many companies.
You should consider this if: You are set on maintaining financial independence and have the wherewithal to survive on your own steam.
For businesses already experiencing significant financial difficulties, bootstrapping may not be sufficient on its own. In such cases, undergoing a period of restructuring may be necessary.
Restructuring involves a thorough review of a company’s operations, finances, and resources. It may include cost-cutting measures like debt restructuring and reorganization.
In our experience at Stage, we’ve found that restructuring can open up substantial opportunities for growth, as well as untapped reserves of inspiration and motivation among employees. By redefining strategies and processes, we’ve seen many organizations find their footing again and achieve high stakeholder returns.
Our approach at Stage, for example, focuses on providing independent, objective assessments for companies in need of a fresh perspective. We also offer interim management in C-suite, legal, and financial roles to help stabilize businesses and restore trust.
You should consider this if: Your company is experiencing financial distress and needs a structured approach to adapting its processes so it can survive and grow.
For a certain subset of startups, crowdfunding can yield outsized results. Platforms like Kickstarter and Indiegogo enable you to raise funds from a large number of backers who believe in your idea.
Crowdfunding tends to work better for consumer-facing platforms, and less so for B2B and SaaS startups. It’s also not ideal for companies who are concerned with intellectual property or regulatory requirements. While these caveats rule out the majority of startups, there are certainly some that would benefit from a crowdfunding initiative.
You should consider this if: You are a B2C company with an idea that resonates with a large number of people and aren’t as concerned about opening up your financing to the public.
4) Grants & Competitions
Winning a grant or competition can provide essential resources for product development, marketing, and scaling—often with fewer strings attached than traditional VC. Additionally, participating in such programs can enhance your credibility by connecting you with industry experts and potential collaborators.
Look for a startup competition in your field or grant opportunities offered by organizations, foundations, or universities. Many government bodies also offer grants, subsidies, or low-interest loans to startups, especially in sectors like technology.
A potential downside of this method is that it’s resource-intensive and may come with usage and reporting restrictions, which can limit your ability to allocate funds.
You should consider this if: Your startup has the potential to create social good and/or contribute to your respective field, and you feel comfortable with certain restrictions being placed on the funds you receive.
5) Accelerators & Incubators
Accelerators and incubators serve as a crash course in entrepreneurship, helping founders navigate the challenges of scaling and increase their chances of attracting further investment down the road.
It’s important to consider that this funding route is competitive and could lead to a significant loss of decision-making control. Also, in exchange for funding and support, most accelerators and incubators require equity, typically ranging from 6% to 10%, and they’ll likely come with location restraints.
Founders should carefully evaluate the terms and commitments of each program to ensure they align with their startup’s goals.
You should consider this if: You are confident that your startup idea will be competitive relative to others in your field and are looking for outside input and guidance.
6) Mergers & Acquisitions
M&A is a scary term for some startups. But in many cases, it can provide considerable benefits to founders, along with the psychological relief of knowing that your business will be financially stable for the foreseeable future.
On top of the financial rewards, an acquisition gives founders immediate access to a larger network of resources and distribution channels. Similarly, merging with a like-minded company can allow you to pool resources, expertise, and customer bases—creating a stronger, more competitive entity that can achieve faster growth and market dominance.
At Stage Fund, we’ve found that M&A can be a win-win for everyone involved. The best M&A deals are characterized by compassionate communications, a deal structure that favors short and efficient turnaround times, and mutually beneficial terms that preserve the startup’s core vision and objectives.
Learn more about Stage Fund.
You should consider this if: You are looking to expand and/or gain access to significantly more capital and opportunities AND are able to find a compatible PE firm or organization that you trust to be on your side through the M&A journey.
As the startup landscape continues to evolve, it’s essential for investors and distressed companies alike to explore the potential benefits of alternative funding strategies. Finding the right strategy—or the right combination of strategies—can help you weather the storm and unlock new possibilities for growth.