In late January, the Job and Business Academy offered a program on how to get your business funded. Entrepreneurship Counselor Terence Strong presented ways that entrepreneurs can guarantee their own funding. He shared routes that are particularly helpful for underserved entrepreneurs, specifically minorities and women – customer-funded businesses and revenue-based funding. While women are 55% of entrepreneurs, only 8% of venture capital funded startup founders are women. Less than one percent are Latina and 1% are Black. More than 40% of venture capital comes from the Bay Area.
A customer-funded business model can be a matchmaker setup, such as Expedia or eBay where the service is connecting buyers and sellers, or it can be a pay in advance system, a subscription model, scarcity/flash sales model or service to product model. Strong, who runs a subscription box, strongly recommends the subscription model in which you have returning customers, a positive cash flow, and customers who buy something repeatedly over time. In a service to product model, the business provides customers with services and eventually creates products that meet common needs that the services provide.
Revenue-based funding is an opportunity to get an investment based on revenue. Some revenue-based funders include Clearbanc, Strike Capital, and Shopify Capital. Strong described this as a good opportunity to be judged on the business that you have, not how you fit into preconceived notions of who is an entrepreneur. Revenue-based funders are primarily interested in funding marketing to grow your business. In revenue-based funding, investors are repaid as a percentage of your monthly revenue. Three months of revenue are necessary to qualify. Strong shared two revenue-based funders that are focusing on underrepresented entrepreneurs – Corl and Founders First Capital. Women lead 30% of the businesses that Corl funds and minorities lead 40%. Of the businesses that Founders First Capital funds, 80% are led by women and 55% are led by women of color. When the bias is removed, Strong says, the best companies rise to the top.
Visit our calendar to find more Job and Business Academy programs. On February 25, the JBA will host a deep dive into customer-funded business models.