5 Ways to Fund Your Business Amid the Pandemic

Sourcing the right funding for your business has always been a challenge but in a world rocked by Covid-19.  For companies that were planning to raise venture capital, the landscape has changed. VCs investment volume typically declines during recessions as VCs want to extend the investment period of their current fund so that they are poised to raise capital after the market has improved. While they’re waiting it out, business owners may need to seek alternative forms of capital. 

The first step in finding your ideal financing solutions is to consider how quickly you need funding and if you’re willing to give up equity in your company. Debt financing comes in a variety of different structures but the basis is that it’s a loan to be repaid with interest over time where equity funding provides capital in exchange for a percentage of ownership of your company. Ultimately, the best option will depend heavily on your current financial situation and how quickly you need funding.

While founders seem to view venture capital as the default capital source, it’s not ideal for most businesses. To attract venture capital investors your business has to have very high growth potential, an enormous addressable market, and a significant amount of capital to fund that growth. 

If your company is a fit for VC, be prepared to spend a good bit of time finding a partner. Since you’ll be giving up partial ownership of your business, you want to make sure you find a partner who shares your vision and that your interests are aligned. While getting VC backing can typically take six months, in recessions VCs tend to invest less capital lengthening the process. And if your company isn’t one of the very top performing startups in the market during a recession, you may need to look elsewhere for financing.

Going to friends and family for funding to grow your business is the most common way to finance a young company. As with venture capital, you exchange a percentage of ownership for funding but with the risk of tarnishing your close relationship. With the stock market plummeting and unemployment rate increasing, however, it’s likely to be a difficult time to raise from the people in your life.

These have always been attractive because of their low rates, but they require good credit and plenty of patience for the lengthy application process, which can take approximately two to three months.

This is a great low-cost option for mature and profitable businesses with great credit but unfortunately most small businesses don’t meet all of the necessary criteria. In addition to the high qualification standards, the terms may require your personal assets to be used as collateral.

A pandemic-fueled boom in crowdfunding has small businesses flocking to capital-raising platforms that experts say could help many companies get back to normal — as long as small-business owners are able to launch effective campaigns.

Regulation crowdfunding, in which companies raise capital from investors via government-monitored online platforms, has mushroomed in the last two years. When the pandemic disrupted traditional financing options, more small-business owners began looking for alternative funding sources; that made them more open to the ideas of crowdfunding and of capital as a commodity.

• It can be a fast way to raise finance with no heavy upfront fees
• Pitching a project or business through the online platform can be a valuable form of marketing and result in media attention
• Sharing your idea, you can often get feedback and expert guidance on how to improve it
• It is a good way to test the public’s reaction to your product/idea – if people are keen to invest it is a good sign that the your idea could work well in the market
• Investors can track your progress – this may help you to promote your brand through their networks
• Ideas that may not appeal to conventional investors can often get financed more easily
• Your investors can often become your most loyal customers through the financing process
• It’s an alternative finance option if you have struggled to get bank loans or traditional funding

• It will not necessarily be an easier process to go through compared to the more traditional ways of raising finance – not all projects that apply to crowdfunding platforms get onto them
• When you are on your chosen platform, you need to do a lot of work in building up interest before the project launches – significant resources (money and/or time) may be required
• If you don’t reach your funding target, any finance that has been pledged will usually be returned to your investors and you will receive nothing
• Failed projects risk damage to the reputation of your business and people who have pledged money to you
• If you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept
• Getting the rewards or returns wrong can mean giving away too much of the business to investors

Although crowdfunding is often associated with raising capital for new businesses, months of lockdowns and capacity restrictions have many small businesses exploring crowdfunding as a way to get back to normal operations. Before deciding to raise capital, it’s wise to understand the legalities. There are a few fundraising methods to choose from and you’ll need to know how your choice impacts the amount of funds you can raise and other requirements you must adhere to. Talk to us about your project and our experts will advise on a bespoke accessibility strategy to meet your requirements.