VCs not the right fit? Here are 5 alternative early-stage startup funding paths

Venture capitalist (VC) funding isn’t always going to be the number one choice for early-stage startups. There are many other potential sources of outside investment. Whatever route you pursue, the need to maintain an accurate and up-to-date cap table remains essential.

VCs are synonymous with startup investment, but they’re not the only show in town. Early-stage startups not yet ready to proceed to a formal seed funding round are often not attractive to VCs, but as they will generally still require outside investment if they are to make progress on their business journey it’s important they’re aware of the alternative potential funding paths open to them.

Depending on the avenue chosen it will normally involve handing over a slice of equity. That being the case, don’t make the mistake of thinking that not dealing with formal VCs somehow makes your cap table less important. Your cap table is the very DNA of your company, detailing who owns how much of what stock type, what percentage of the overall pie individual holdings represent and what each stake is worth.

Any investment deal involving an equity element will require that you update your cap table to reflect the new status quo. Failure to maintain an accurate cap table can create confusion around the company’s ownership picture and will undermine your credibility with any potential partner. Remember, at this stage, investor confidence is crucial.

Alternative funding paths

The suitability of any of these approaches will depend upon your specific circumstances, e.g., your industry and what level of investment you require.

1. Angel investors: These are individual entrepreneurs with a track record of success who seek out early-stage companies with potential. May adopt a more personal approach than that offered by VC firms.
2. Family & friends: May involve equity, but can vary, depending upon the terms.
3. Crowdfunding: Can be either rewards-based or involve equity.
4. Incubators and accelerators: Mentoring, networking and investment programs designed to help startups grow can often be an alternative funding path. Will often include an equity element.
5. Convertible notes: Loans from investors that convert into equity down the line.

Remember no matter which route or combination of funding routes you follow, if it involves equity it will have implications for your cap table. That means you need to know that you can trust in the accuracy of that record at all times.

Cap table accuracy

As a founder your job is to move fast and make decisions. Having a cap table provider who can give you clarity, control and confidence in your equity with tools that grow with you is essential. Consider how having access to functionality like scenario and round modeling where you can simulate outcomes and give your investors confidence could benefit you in preparing for key meetings.

Early-stage startups often look to maintain their cap table in-house on a spreadsheet. However, as your ownership picture becomes more complex, deciding to partner with an external provider can help maintain the integrity of your cap table. Knowing that at some point you may outgrow the spreadsheet approach, it may be better to get ahead of any potential issues and embrace automation sooner rather than later.

What next?

J.P. Morgan Workplace Solutions’ cap table software was created with founders, startups and scale-ups in mind. It’s free to use for up to 40 stakeholders and is designed to meet your changing needs as your company grows, from inception, through funding rounds, to IPO and beyond, wherever your journey takes you.

Contact us now to arrange a demo.