Funding

For Entrepreneurs, Venture Capital Is Not Always the Best Option

Entrepreneurs get creative about funding their businesses -- and maintaining control of their vision.
For Entrepreneurs, Venture Capital Is Not Always the Best Option
Image credit: Brian Stauffer
Magazine Contributor
3 min read

This story appears in the June 2017 issue of Entrepreneur. Subscribe »

You want numbers? Peter Dering has numbers. Peak Design, the camera accessories company he bootstrapped in 2011 with $25,000 from savings, has now raised more than $14 million. It has generated 90 to 100 percent growth for five years straight, and he has zero debt. But here’s the most exciting number: Dering still owns 100 percent of the company. 

“The traditional model is to give away equity before anything about the business is determined,” he says. “I didn’t consider that.” Instead, Peak Design grew via crowdfunding. A Kickstarter presale campaign for each of its six product launches secured a healthy cash injection at every pivotal moment and helped build a rabid fan base. Its most recent campaign raised $6.7 million. 

Related: Why Equity Crowdfunding Matters to Small Business

It’s not that VCs are a bad option. But, many entrepreneurs say, equity investors are better suited for startups with whiz-bang proprietary technology and a realistic strategy to scale and sell quickly. That’s not everyone’s goal, of course -- and entrepreneurs should find growth vehicles that work for their company, says Anand Sanwal, CEO and cofounder of the data-analytics company CB Insights. “Folks overestimate the value of raising money because of the validation it provides,” he says. “But when you take VC money, you’re married to their model.” 

Today, fundraising options are many. There’s crowdfunding, of course. Then there’s a growing number of equity crowdfunding platforms like Wefunder, which allows private companies to raise money from tiny investors. It launched last year and already reports investments of $36.5 million across 156 companies. That includes Texas brewery Hops & Grain, which wanted a new taproom and used Wefunder to raise $1 million in less than two months -- some from its fans, who might even spend more on beer to boost the value of their investment. “Thirty-one percent of our investors put down $100,” says Nick Tommarello, CEO of Wefunder. “They’re not expecting to get rich, but they’re happy to see their investment pay off.”

Related: 15 Ways to Scale Your Business and Make More Money

Other platforms supply information instead of cash, like TrendSeeder, which focuses on the fashion, beauty and wellness industries. “You can think of us as a sweat-equity fund,” says founder Avani Patel. It does take a small equity stake -- far less than what you’d expect to relinquish to a VC -- and in exchange gives startups access to mentors and investors.

As for Peak Design, Dering now (happily) turns down regular offers from private equity funds. “If we had a bunch of investors, we’d be forced to grow even faster,” he says. “The point is to have a job that facilitates the enjoyment of life. And part of that is financial freedom.” 

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