Startup funding: Know the bucks behind the business
A Cadillac with an empty gas tank is just a really nice, really expensive decoration for your driveway.
Change my mind.
A startup company without funding, is just a really great idea. A dream. Just like a car without gas will never get out on the road, a startup without funding will never get its product out on the market.
"There are opportunities for startup funding out there, your job is to find them and take advantage," says Daniel Weisfeld, CEO and founder of Resthetics, a blossoming startup that takes waste anesthetics and converts them into safe, renewable resources.
Mohamed Hashim, Resthetics co-founder and chemist, chimes in, "You have to do your homework. It's a slow process and hard work, but it'll be rewarding once the money comes in."
Putting the fun in startup funding
According to Weisfeld and Hashim, Resthetics joined the Texas A&M New Venture Competition and won admittance to the Texas Medical Center Accelerator, in addition to funding. In fact, their company is backed by the Texas Medical Center to date.
Business plan competitions give hopeful entrepreneurs the chance to vie for funding of their technology's development. They also give young entrepreneurs real-world experience and a chance to refine their business plans. Business plan competitions offer entrepreneurs a better understanding of what it's like to get a new venture off the ground and helps them learn to commercialize their technology.
You can browse a few business plan competitions here, including a Houston-based one.
While on the surface, an angel network may seem like a religious TV station, it's actually something a little more beneficial to your search for funding. Angel networks are composed of angel investors, i.e., people who invest their own funds into the beginning stages of a startup, with the hope of seeing a big return on their investment later on. Angel investors who invest in startups that end up failing will lose their money. It's a big risk.
They are called "angel" investors because these individuals give their own money to support startups, unlike venture capitalists who use funds pooled together from a group of investors.
Weisfeld suggests that, "Even if you don't think that your company fits someone's investment criteria, you should still reach out to them. Always ask. An investor might like you or your tech enough that they'll make an exception, or they may even recommend you to someone they know who is willing to invest."
Fun fact: In the early part of the 20th century, wealthy business owners gave their own money to support stage plays, so the term "angel investor" was born from Broadway.
You can find local angel investors in Houston here.
Non-dilutive funding sources
Often times, a startup will garner funding but will have to give up partial ownership of their company in return. This is not the case with non-dilutive funding sources. One example of non-dilutive funding is a bank loan. Sure, you'll have to pay a monthly interest rate, but you'll also get to keep absolute ownership of your startup.
Another example of a non-dilutive funding source is revenue sharing. Revenue sharing places more emphasis on a company's growth rather than its equity (your assets vs. your debts). This is important because it is congruent with the interests of entities who provide non-dilutive funding. Funding entities are more concerned with how sustainable your startup is projected to be rather than how much it is worth. This makes non-dilutive funding one of the best avenues through which to receive monetary sponsorship
Startup accelerators support startups as they are, well, starting up. Focused on the early stages of companies, accelerators offer startup funding, mentorship, connections in the industry, and education. Resthetics, a finalist for the 2018 MassChallenge accelerator in Austin, was able to expand its young company thanks in part to the connections made at the MassChallenge accelerator. Weisfeld and Hashim gained access to global mentor networks through the MassChallenge accelerator. Mentors helped them with manufacturing, quality management systems, and guided them as they developed Resthetics.
One of the primary differences between accelerators and business plan competitions is that accelerators offer intensive training and rigorous mentoring to push entrepreneurs to learn the ins and outs of running a business in the span of a few months. It's a hands-on crash course in business, and not for the weak at heart.
Brave souls can find Texas accelerators here.
Bang for your buck
So you've finally received the funding you need for your startup. Now what?
As a kid, my old man never let a teachable moment pass him by. After I spent ten bucks on a single Pog, my dad's new mission in life was to teach me the value of a dollar.
This lesson becomes all the more important after you finally receive funding for your startup. Weisfeld stresses the importance of budgeting after funding is acquired.
"What's the furthest you can go with the smallest amount of money?" asks Weisfeld.
Weisfeld opines that while you must be comfortable spending money, you also have to be confident with your budgeting strategy so that you spend each dollar as efficiently as possible as you take your product to market. After all, what funder is going to want to invest in someone who is wasteful with money?
Whether it's negotiating with vendors, outsourcing, cutting costs, or using independent contractors, it is incontrovertible that financial efficiency should be your next goal after you've finally acquired your startup funding. As Weisfeld proclaims, "Every dollar you spend should in turn create the same amount of value to the company."
This article originally appeared on the University of Houston's The Big Idea.
Rene Cantu is the writer and editor at UH Division of Research.