Katherine Webster is founder & CEO of VetsinTech, a nonprofit helping veterans accelerate startup & job opportunities in the tech sector.
Having worked with hundreds of veteran entrepreneurs, I can tell you that the biggest challenge they face is access to capital. A 2017 report titled “Bridging the Gap: Motivations, Challenges, and Successes of Veteran Entrepreneurs” (download required) concluded that veterans need more support around financial education literacy and confirmed that veteran entrepreneurs’ primary challenge is indeed accessing capital.
Dispelling The Misconception About Venture Capital
One observation that I repeatedly see working with veterans daily is a common misconception most of them have around funding. When a veteran entrepreneur has successfully grown their tech startup and is seeking to scale their business, they think their next step should be a beeline route to venture capital investors on Sand Hill Road. I’m here to help set the record straight. For starters, funding sources really should depend on the stage of the business. For early-stage startups, typically, VC funding should come later down the road.
Examining when a startup should seek funding requires a more in-depth discussion that we plan to explore more with you in the future. However, one key piece of advice that I’d like to underscore to veteran entrepreneurs is that they need to undertake proper due diligence of their product or service as a first step. They really should do this before they invest any more of their time, resources and sweat equity into making plans to scale their small business. Some critical areas that require careful strategy and research include:
• Nail down your product hypothesis and validate it with ongoing testing. Eric Ries, the founder of The Lean Startup, provides an invaluable methodology and roadmap for this undertaking.
• Conduct a thorough competitive analysis.
• Assess and finetune your revenue model.
• Plot your growth projections and planned use for needed funds.
Pursuing A Broad Range Of Funding Options
Part of our mission at VetsinTech is to educate the entrepreneurial community of veterans and military spouses about the broad array of funding sources available to them. Our own studies have shown that more than 92% of veteran entrepreneurs and military spouses are eager to learn more about access to capital and building their knowledge about the aggregate funding process.
On the heels of National Veterans Small Business Week, I hope this list of funding sources can be a valuable one that veterans and military spouses keep top of mind. This list of Vet Cap funding sources includes:
• Bootstrapping. Often, this extends beyond the founders’ resources (personal savings, credit cards, etc.) that they’ve already invested in their business. Friends and family are frequently some of the earliest private investors in helping startups bootstrap their small businesses.
• Grants. There’s a rich trove of business and government grants waiting to be tapped. While preparing and submitting a grant may take some upfront work, much of the effort can be repurposed for seeking future grants that veterans may be eligible to pursue. Not to be overlooked, there is the Small Business Innovation Research (SBIR) program that is a U.S. government program, coordinated by the Small Business Administration, intended to help certain small businesses conduct research and development. Funding takes the form of contracts or grants.
• Corporate development. There is a cornucopia of companies, often across industry sectors, that commit funding resources to veterans. The tech sector in particular has an extensive list of companies with dedicated resources they’ve allocated to funding veterans.
• Loans. Traditional loans, particularly from the SBA or local and community banks, have ongoing dedicated pools of money earmarked to support veteran entrepreneurs.
• Crowdfunding. There’s a variety of crowdfunding platforms that have surfaced beyond Kickstarter and Indiegogo. Several of these are well suited to fast-growing, tech-based startups.
• Debt financing. Many places provide the how-to’s around debt financing. This funding source can be a very attractive route for pre-seed startups as it can protect premature dilution of its equity.
Venture capital is undoubtedly a viable path that we encourage but only when the startup has reached the right stage. When considering venture capital financing, there’s a range of options that depend on the age and stage of the startup. The VC landscape spans from an angel investor to pre-seed and seed-stage VC and then investment firms that focus on Series A, B, C, late-stage, etc.
In a future piece, I’ll be sharing more about Vet Cap that expands on funding options for veteran entrepreneurs, highlighting veteran-friendly VCs and sharing investors’ perspectives on how to raise a funding round successfully.