- Venture capital firm Y Combinator asked startups in its portfolio to consider other ways to raise funds in 2022.
- It comes at a time when venture capital investment is plummeting and tech companies are laying off workers.
- The founders describe other ways to raise funds, such as personal loans, frugal living, and credit cards.
Silicon Valley venture capital firm Y Combinator has told startups in its portfolio that fundraising could become difficult this year.
“No one can predict how bad the economy will get, but things don’t look good,” reads the letter, titled “Economic downturn” and sent to founders planning to raise funds in the next six to 12 months. . “The safest move is to plan for the worst.”
Y Combinator’s letter comes at a time when tech companies are implementing hiring freezes and layoffs because they anticipate a
Later this year. Venture capital investments are also down: A May report by Crunchbase News found that the value of venture capital investments fell by $5 billion between March and April.
But raising venture capital isn’t the only way to fund a business. Insider spoke with three founders who shared how they successfully started and grew their businesses without risk capital.
Determine the best type of financing based on your income
Funding expert Arielle Loren – who is also the founder of the first business funding app for women, 100K Incubator – has divided funding options into three tiers based on a business’s monthly earnings ranging from 0 $ to over $100,000.
At the first level are companies that earn less than $3,000 per month and have not yet established a proof of concept. Tier one financing options include business credit cards, personal loans, home equity loans, and crowdfunding. Loren said these worked better because these founders hadn’t started making a serious profit. Therefore, they should not withdraw funds that they may not be able to repay.
Businesses at level two earn $3,000 or more per month in sales and are on track to hit six figures per year. Loren lists financing options such as pitch contests, government contracts, government small business loans and private business loans, payment processor loans, and commercial lines of credit that businesses can consider. These are good options for businesses that have just started generating steady revenue and are looking to expand.
The final tier includes businesses that earn $9,000 or more per month in sales. For companies that might not want to seek venture capital based on recent warnings, angel investing is another option. Business owners can consider this when their businesses show enough growth to seek serious funding.
Also, the biggest advantage for Tier Three companies is that there is nothing to pay back. However, it also means that the owner will give up more of their capital and therefore more parties can be involved in decision-making.
When Money’s Tight, Use a Spreadsheet to Track Expenses
Shereen Campbell started her online business My Little Magic Shop selling crystals, gems and jewelry with $3,400 from a tax refund. She wanted to track every dollar she invested in her business and used a detailed budget spreadsheet to organize expenses such as savings, debt repayment, and paychecks.
She also created a second spreadsheet that tracked her company’s revenue, traffic, and sales goals. This helped her scale the business and she now makes $12,000 a month.
“Being so diligent in creating and maintaining these two spreadsheets has really, really helped me stay focused, disciplined and strategic,” she previously told Insider.
Set a modest budget and stick to it
Jeremy Schneider said the key to success in starting his business RentLinx, an advertising website for rental properties, was to live frugally. He stuck to a fixed budget for groceries, drove an old car, and paid himself minimum wage to keep costs low while scaling the young startup.
“I had a roommate and our rent was $1,400, so I was paying half of that,” he previously told Insider. “It was a very frugal life.”
In 2015, 12 years after launching RentLinx, he sold it for $2 million.