Give Away Equity For Funding? Not This Startup
Written by Ken Gaebler
Kansas City firm breaks the mold by raising a half million dollars in startup funding without sacrificing an equity stake in the business.
For many startups, the funding routine goes something like this: desperate for an injection of startup or expansion capital, the company approaches angel investors or VCs and agrees to relinquish a share in the company in exchange for funding.
But in a recent Business Journals report, one startup is bucking the trend by securing a substantial amount of capital without handing over an equity stake to investors.
Local Ruckus, a Kansas City-based event search platform, managed to secure $500,000 in capital without the assistance of equity investors. How did they do it? When the business needed a critical influx of capital, the company looked to alternative funding sources and secured capital through a combination of a distributor partnership, selection in the Digital Sandbox KS startup program and a Workforce Partnership grant.
Local Ruckus' decision to avoid angel investors wasn't based on a philosophical opposition to equity funding -- it was based on the founder's belief that refusing to give up equity at this stage of the company's life would put them in a better position when they approach equity investors in later funding stages.
"We can put ourselves in a much stronger position with investors by closing non-equity funding options that we had," said Adam Arredondo, CEO at Local Ruckus. "It also gives us a runway that we're not so strapped for cash."
The process of attracting investors can be tricky, even for experienced entrepreneurs. But every business shares a common goal, i.e. growth. Many entrepreneurs are willing to do whatever it takes to fund that growth, even if it means giving away a sizeable share of the business during its earliest stages.
For entrepreneurs, the takeaway from Local Ruckus is that savvy business ownership requires a funding strategy. Although it might be tempting to accept angel funding right out of the gate, the decision to participate in an equity investment scenario needs to be incorporated into a long-term funding strategy.
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