In 2021, global venture capital investment reached a record $621 billion, showing an increase of over 100% from the previous year.
However, in 2022, venture capital investment slowed to $445 billion due to macroeconomic factors such as rising interest rates and inflation. And according to a report by EY, venture capital investment is expected to fall to $380 billion in 2023.
Nevertheless, this does not necessarily indicate a slowdown in innovation, especially in the parking and mobility sector.
Although the VC fundraising landscape has cooled down, companies have been able to rely on other modes of funding.
Exploring Different Ways to Add Capital
While building Ocra, we have explored many different ways to raise capital, starting from the earliest stages to the present, having just come off a very successful oversubscribed fundraise.
Four years ago, I was living in a crowded and rundown apartment close to the LA Coliseum, selling near-venue parking spots with cardboard signs.
During those days, I would pitch almost any VC possible to buy into our vision.
At the time, it was difficult not to follow the headlines of companies raising millions, leading me to question what we were doing wrong.
It was challenging to text my co-founder that a pitch went great, only to inform him a few days later that the investor had “passed”.
The idea of “traction” became an obsession after constantly hearing that we didn’t have it, and we couldn’t help but fall into the naive trap of doing whatever it took to please an investor while trying to build the business.
For example, an investor would say:
- At least one founder needed to be full-time, so I would grind 100+ hours a week.
- We needed a proof of concept, so we would build a mobile app MVP.
- We needed a few early customers, so we would sell a few customers.
Here’s what they didn’t say:
- Doing everything just for investor metrics doesn’t mean that the investor will wire money.
Ironically, the best thing that happened to the business was not raising the capital that we were so eager to raise.
Had we received the capital we were seeking ($250k at the time), we would have forced a model that ultimately would have deterred us from our first breakthrough moment.
We also would not have learned the important lesson of raising the right capital for our business, not just the available capital.
Today, we are offered investment in return for equity almost weekly.
For companies raising capital today, the CEO should craft a daedal fundraising strategy to raise money from individuals and/or firms that will be value-add shareholders.
It is important that there is more value coming from the investor than just putting cash in the bank.
Additionally, the CEO should always monitor cash flow and curate a pipeline for more funds to be injected into the business when necessary.
Areas outside of venture capital that Ocra has raised capital from include, but are not limited to, crowdfunding/advance selling, grants, and strategic partnerships.
While the SEC’s changes to Reg CF and Reg A+ over the past 5 years have transformed the utilization of equity crowdfunding, in this article I’d like to focus on another form of crowdfunding: advance selling.
Advance selling may be one of the best ways to raise non-dilutive capital.
This crowdfunding technique consists of the company selling its product or service in advance of its initial release.
Here are some of the benefits of advance selling:
- For software companies, offering an annual or multi-year subscription at a discount can create alignment between the buyer and seller, both of whom benefit from the transaction.
- It sources early customer feedback that can be used to improve the product or service before its release.
- It builds a community of early adopters and champions who will boost your Net Promoter Score (NPS) and open doors for new customers.
This is another way to inject non-dilutive capital into a business, one that can present positive signals to customers, employees, and even investors.
A number of websites can be utilized to routinely scrape grant databases so that companies can find related opportunities.
Generally, no strings are attached when applying and accepting a grant. But be sure to read the fine print thoroughly when applying, as there may be specific qualifications one’s company must meet.
Large programs such as Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) can open a pipeline for follow-on grants upon successful completion of their initial grant.
This is typically dilutive, equity-based investing where the instruments look and feel extremely similar to venture capital.
It is fairly common for the investing company to invest off their balance sheet or raise a fund to do so.
I’ll preface that we may be biased on this mode of fundraising, as it has been our primary source of funding as a vendor-neutral company with a “Switzerland” mentality.
In our case, enabling individuals or companies from within the industry to invest has fostered further alignment, and we’ve benefited from value-adds specific to our industry.
Strategic partners have more incentive to drive value and growth by creating “1 + 1 = 3” opportunities, because they share in the valuation upside and have a seat at the table.
Also, these investors typically understand the needs of the marketplace and can help with introductions to new customers and partners via their distribution channels.
The Name of the Game: Diversification
The aforementioned fundraising strategies are just a few ways to add capital to a business.
It’s also worth noting that debt is often a great fundraising instrument, but high interest rates negate much of that value in the current market.
With that, companies with cash in the bank can take advantage of the current market conditions by deploying numerous treasury management techniques.
(That may also be a topic for another time, but we are currently earning close to 5% on our cash.)
Diversifying modes of fundraising is often a successful tactic and presents more options for capital.
Having more optionality enables a CEO to weigh the benefits and drawbacks of where they are raising the capital.
For this piece, we highlighted the benefits, but every action has a reaction, which rings true in fundraising too.
For anyone looking to raise capital, I am happy to be a resource and connect you with leaders who can share their wisdom, as they have graciously done with me.
You can find me, as always, at email@example.com.