3 Strategies for Midwest Entrepreneurs Looking for Startup Funding
Do you dream of launching your own startup? If so, finance probably comes high on your list of priorities. As a founder myself, I’ve learned some powerful, real-world approaches to funding a startup venture — and a lot of it comes down to knowing where to look, and who to ask.
I’m co-founder of LendEDU, an online loan marketplace. We launched the business in 2014 and have since grown it to to seven figures in annual revenue.
My co-founder and I started the company while still in college, so it wasn’t like we could mortgage our homes in order to get the cash needed. Nor could we, as first-time entrepreneurs, rely our on our track-records.
Finding funding outside of Silicon Valley isn’t easy, but it’s not impossible either.
We launched our business in Iowa — and didn’t have to move to West in order to access capital and start our company. You can do the same.
Here are 3 ways to find funding for your startup if you live in the Midwest.
One of the first ways we funded our business was by participating in an accelerator. Most accelerators provide you with investment in return for equity in your business. They also provide a formal program with mentors who help you refine and grow your business during a defined period of time — usually a couple of months.
While the investment is important, so is the network that accelerators connect you with, and the powerful business skills and advice they offer through mentorship.
If you’re looking for accelerators in the Midwest, Capital Innovators, the Iowa Startup Accelerator, and Ameren Accelerator are excellent options.
Capital Innovators provides startups with $50,000 in seed funding in return for 5% to 10% equity. They offer the chance to connect with mentors, learning opportunities, and office space
The Iowa Startup Accelerator works with more than 165 mentors and provides a variable level of funding. They provide a number of different learning experiences from marketing workshops to customized help with term sheets.
Ameren Accelerator is a partnership between the University of Missouri at St. Louis, Capital Innovators and Ameren Energy. They choose 5-7 companies to participate in their 12-week program. The participants get over $100,000 in funding, perks, and benefits. The program is focused on supporting next-generation energy companies, especially ones that will work together with Ameren Energy down the line.
2. Midwest Venture Capital Firms
Maybe venture capital and the Midwest might not be two things you usually associate. If not, you’ll be pleasantly surprised by the crop of firms based in the area.
Split Rock Partners, based in Minneapolis, has a $1 billion fund and focuses on companies at all states of development from seed to growth. They primarily fund companies in the tech and life sciences sectors.
Detroit Venture Partners, based in Detroit, looks to help revitalize their region and provides seed and early stage investments to companies in Michigan. They have supported gamification ventures, consumer review companies, and marketing platforms.
Drive Capital, based in Columbus, Ohio, was started by two partners who used to work with the famous Sequoia Capital. While they are a newer company compared to other venture firms, they have already raised a significant amount of money and are looking to invest in Ohio-based businesses.
JK&B is another big player in the Midwestern venture capital game with over $1 billion in funds. They are based in Chicago and invest in software and IT firms.
In the health field? Ascension Health Ventures based in Clayton, MO could help your company. They manage over $550 million and look to invest in companies that provide better care for the vulnerable.
3. Traditional Sources of Funding
Once you’ve applied to all the accelerators and tapped all the venture capitalists that you can convince to meet you for lunch, you could look into more traditional borrowing options. You can get cash via a business or personal loan from a bank, credit union, or online lender.
Some loans require collateral (secured loans), and some do not (unsecured). However, secured loans such as a home equity loan or line of credit are often easier to qualify for — and could potentially give you lower rates.
If you’re taking money out via a business loan, you’ll likely have to co-sign for it. Your business won’t yet have a track record, and so it won’t have good enough business credit in order to qualify for a loan on its own.
It’s a good idea to get a business loan early — that way, your business can start building business credit so that in the future you can take out loans without co-signing for them.
When it comes to where to take out your loan, you should know that credit unions or online lenders might be more likely to lend to your new business than banks who tend to have stricter lending requirements. You probably won’t qualify for Small Business Administration loans since many SBA lenders place restrictions on how long your business has been operating in order to qualify.
You might also want to look into business grants. There are tons of grants available: they can range in value from $500 to over $100,000 and can be targeted to businesses in certain geographical areas, businesses owned by minorities, or businesses in certain fields. You should also check with your local business development center to see if there are any local grants that you should know about.