Check the first part of the article > https://bit.ly/3JF8fii
6. Startup programs
Pre-accelerator and Incubators make small investments which are equity free or for just 1-2%. These programs actually add quite a lot of non-financial value, especially to first-time startup founders. By joining such programs, founders can not only gain knowledge, tools, mentors, teammates and understand the ecosystem but also get direct access to VC funds, business angels and corporates.
7. Grants/Public money
The calls for grants/public money are the most reliable way to fund research or a deep tech project. The reason is that R&D projects have a long-term investment horizon. This makes them riskier, more time and money-consuming for investors. Here founders can raise 30-150k equity free with idea to proof of concept. Usually, the funding happens on the 4-5th try, when the application is fine-tuned. One trap here is that some founders focus their effort on winning more new grants instead of developing sustainable businesses.
8. Business Angel
There are two types of business angel investments. Solo business angel or group of business angels. The first scenario is the classical one, the second is more like VC funding, which is next the point. To have a solo business angel has a lot of trade-offs. On one hand, business angels are more engaged with the startup because they invest their own money and probably have expertise in the sphere of the startup. This means they can help with contacts and know-how, which sometimes is much more than just money. On other hand, solo business angels usually estimate startups with much lower evaluation compared to VCs and try to dominate the founders.
9. Venture Capital
VC is the most common way to fundraise money just because it is their mission. VCs in Easter Europe are usually back-funded by EU. This means they have clear tickets and parameters for startup investment. Actually, VCs receive a lot of applications not only from startups but any kind of business. Funding from VCs is a good way to validate your idea at early stage with 50k or scale your project after product-market-fit with up to 1M euro in Bulgaria. It is good to know that traction increases your chance of getting VC funding
Startups are too risky for conservative financial institutions such as banks. That’s why getting a loan for a startup should be secured with other assets. Here the risk is too big, especially for early stage founders where the chance of things getting wrong is big. This means founders can generate serious long-term debt. On the other hand, loans can be a useful instrument for scaling startups in order to buy machines and other equipment.
Getting corporate investment to develop a startup is called co-creation. It happens rarely in Eastern Europe but if it happens, it means that the startup has enormous potential. The pros here are many – unlimited investment, great brand behind the startup, first users, product-market-fit validation, database with b2b2c contacts etc. The cons are that sometimes the corporates want to be the main stakeholder and you become a glorified employee. The other one is that corporates are slow and this can reflect in startup development, which can lead to failure.
In conclusion, finding the best funding approach for a startup depends on many things. That’s why it is good for startup founders to go through a pre-acceleration program where they can orientate in the situation, gain knowledge, contacts, mentors, direct access to funding organizations in order to choose the best funding solution for them.