Capital is the lifeblood of any business. For startup founders however, the traditional funding options like bank loans or venture capital can feel like an overcrowded highway, full of gatekeepers, competition and compromises.
The most successful founders in history always looked past the obvious and tapped into other forms of funding to fund growth, but also get an advantage within their industry. As the crypto-market heats up today, the importance of the spirit for financial innovation has never been greater.
Ford and Dell: Lessons learned from history
Rewind back to early days in entrepreneurship, when the competition was low and rules less clearly defined. Henry Ford is a good example. Ford was not backed by traditional financiers, but rather by local Detroit investors that believed in Ford’s vision. They were not Wall Street titans, but ordinary individuals who were willing to risk their money on an individual with a great idea. Ford was able to bypass the restrictions of traditional funding by using alternative financing. This allowed him to be innovative at his own pace. What was the result? What was the result?
In the 90s tech boom, corporate alliances and partnerships were another form of alternative capital. Dell Computers struck agreements with its suppliers in order to obtain inventory and avoid upfront payments. This effectively turned supply chain relationships into working capital. Dell’s innovative financing was not only resourceful, but also revolutionary. It allowed the company to grow rapidly and be independent of traditional lenders.
Michael Saylor and Bitcoin: Modern Moves
We’re witnessing a revival of this mentality, especially in the crypto-space. Michael Saylor, the CEO of MicroStrategy is one notable example. Saylor’s decision to acquire Bitcoins and leverage them as treasury assets is not just an innovative financial strategy — it also makes a powerful statement on the changing nature of capital. MicroStrategy’s balance sheet has become a dynamic asset by converting dollars to Bitcoin. The company has been positioned as an innovator in technology and finance. Saylor’s strategy is a warning to startup founders: the tools and strategies used for raising capital no longer fit into the traditional playbook.
How to raise capital as an entrepreneur
Alternative capital: Building your own playbook
Why should entrepreneurs care at all about other forms of capital? Answer: agility and differentiation. The traditional funding options often have strings attached – equity dilution or rigid repayment terms, for example. The flexibility of alternative capital is a big advantage. Finding untapped resources is key, be it through cryptocurrency, revenue-based funding, strategic partnerships or crowdfunding.
We see a very similar dynamic in the crypto-world with Initial Coin Offerings and token sales. The ICO craze in 2017 may have been a time of speculation but the underlying idea remains strong. Startups can create an ecosystem of early backers who have a stake on the success of a project by issuing tokens. The model is a great way to align incentives, something that equity and debt funding cannot do. This is not a coincidence. Web3 projects such as Bored Ape Yacht Club or Pudgy Penguins leveraged the approach in order to grow rapidly and foster vibrant communities.
Alternative capital has its own challenges. Crypto markets, for example, are notoriously volatile. The timing is crucial. MicroStrategy has been scrutinized for its Bitcoin strategy, which was successful during bullish cycles.
This requires the same planning and execution as traditional venture capital. Unsuccessful campaigns can damage a brand’s reputation and do greater harm than good. The key for founders is to treat alternative capital with as much rigor and diligence as other forms of funding.
Compliance with regulatory requirements is another consideration. Alternative capital is evolving, especially in the crypto world. The legal landscape for alternative capital, particularly in crypto, is still evolving. Neglecting these details could lead to expensive setbacks and undermine the agility of alternative capital.
What does all this mean to today’s founders of startups? This means adopting a financial creative mindset. Capital is not a static tool, but a dynamic resource that can be leveraged, shaped and optimized. Asking questions such as: How can we tokenize our products to raise money? We can turn pre-orders from customers into a funding mechanism. Were we able to partner with other companies or suppliers in order to develop mutually-beneficial financial arrangements?
You don’t need venture capital any more — here are 4 funding alternatives
Look forward
The goal of raising money is not to simply raise cash, but to raise intelligent money. Alternative capital allows entrepreneurs to innovate, maintain control and build community without being constrained by traditional funding. No matter if you are inspired by Ford’s local investors or Dell’s ingenuity with supply chains, Saylor’s Bitcoin playbook or Saylor’s Bitcoin strategy, the message is still the same: the future belongs to the people who think differently about money.
Alternative capital becomes a necessity when the competition and pace of innovation are relentless. The founders who are able to master the art of financial creativity will thrive and not just survive.