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StartupWeekend Bay Area: Alternative Ways to Fund Your Start upIdea

StartupWeekendThis past weekend, I had the pleasure of being a guest speaker at the StartupWeekend Bay Area event.  What an exciting concept: allow a hundred or so people get together, give them creative, coding, and interaction freedom, and support them with anything they need to build a product in a weekend.

It was an unbelievable event.  Just standing next to a passionate group of people with so much drive and determination, but more importantly, the willingness to mess up and learn from it, was simply amazing.   They had nearly 50 ideas pitched (in less than 60 seconds too), while the top 15 got picked to be coded and get ready to ship in less than 54 hours.

The topic they wanted me to address was “Alternative Ways to Fund Your Start up”. Yes, we all know about angel investors, and venture capital, but that comes later, doesn’t it?  First, you have to build a product that does enough to wow your customers (and potential investors).  So how do you fund your idea until then?

The Standard Funding Sources
Perhaps your idea is good enough that you have family, friends, angels, and even venture capitalists ready to go with you on it.  The reality is that not many ideas get funded at this stage, so what ends up happening is you try to scour time and resources from your friends and business network to volunteer to get your up and running.  Sometimes you incur some expenses on your credit card or from your savings to get you through it.

We all know that, during the current financial crisis, everyone is being tight with their money.  It has been documented extensively how venture capitalist are being extra cautious while credit card companies keep increasing their rates for no other reason than just keep the service available to good credit card holders.

But don’t despair… tough times are also the hotbed of innovation, and the financial industry is not the exception.

The Alternative Funding Sources
Several alternatives have emerged that connect people with money to those who need it, and this is great news for those looking to start up a new business: Peer-to-Peer Lending, Microfinance, Crowfunding, and Private Family Funding are some of the financial innovations coming out of the Web 2.0 revolution.

Peer-to-Peer Lending:  Get a 3-year fixed rate personal loan from strangers at Lending Club or Prosper.  That’s right!  You can get funded by other people and you don’t even need to know who they are.   About 7.5% of the loans on Lending Club are used for business purposes for up to $25,000.  This is not for everyone though, as you have to show a responsible credit history.

Microfinance:  Get a small business loan from Kiva or Microplace to help you get started.   Even though these sites have primarily focused in third world countries, they have now opened up to US entrepreneurs with help from fantastic organizations like Accion USA and Opportunity Fund.

Crowdfunding: Let the “crowd” fund you through widgets and websites that allow you to appeal to the world (starting with friends and family) and through your social networks (Facebook, Twitter, MySpace, LinkedIn, etc), then collect the dough to get you going.  This has worked modestly well for the music industry with sites like and leading the crow funding movement. has taken the concept and applied it to any endeavor from art to code (wait, coding is an art too, right?), but is the first one to focus on startups.  Also, Chipin is a nifty little widget that allows you to collect money for any cause.

Private Funding: Have a friend or family member who is willing to give you a “social loan” until you hit it big?  Don’t just take the money and create an awkward situation that could damage your relationship for years to come… nothing worst than hiding from uncle Bill at the Thanksgiving dinner.  Instead, formalize the loan via sites like, which let you create the necessary legal documentation to track the loan for a modest fee.  You get the benefit of negotiating the loan terms directly while building your credit and your startup.

As you can see, and as I told the StartupWeekend crowd last week, in 60 seconds or less, is that there are options available that should not be ignored.  If you have the right idea, the passion, and the drive to make it happen, don’t let it die: give it a chance.

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