Tips for Overcoming Funding Challenges as a Startup

When the topic of business startups comes up, often the focus tends to lean toward tips and advice for the beginner phase — how to get your idea off the page and into reality. While that is of course an important step in any business journey, it certainly isn’t the finish line. In fact, it’s only the starting point. Turning your new business initiative into a long-term success requires navigating a unique set of challenges at each new stage.

Funding, funding, funding

Discovering the gap in your market and establishing a viable solution is actually something that can be done relatively cheaply. In terms of capital, that is the easy part. However, once you cross that threshold, start to build your product or service and see growth and expansion, that is when you’ll find yourself in need of more funds. The challenge here is finding investors or lenders for your startup. Did you know that only 0.5% of startups manage to raise a VC funding round?

The sad thing is, traditional lenders frequently aren’t interested in backing a startup. We as a company have faced repeated rejection based solely on our business being too new, and we’ve been advised to come back with three to five years of trading history. This may sound sensible in theory, but how is a startup meant to build said trading history without the funding to sustain the business in the first place? And that small pool of lenders who are willing to help startups end up offering interest rates of 20% or more — an unfair and unrealistic amount for startups to begin with.

Further, like many others in the industry, we as a vibrator brand have frequently faced and struggled with the backward attitude of many lenders. Despite the sex toy industry’s size and popularity, investors are famously tentative about backing sex-toy startups. So much so that many brands find it difficult to open a business bank account, let alone gain access to lending facilities. This is primarily due to sex toy manufacturers getting lumped together with other adult businesses like porn companies and strip clubs, which still face stigma.

Putting your startup on pause until you can secure the capital is rarely a good idea. Potential investors who aren’t put off by the industry, and are able to move beyond the backward sexual taboo mentality of the past, may still likely be put off if your startup fails to demonstrate tangible progress. Investors want to feel excited by the prospect of teaming up with you and want to feel that the train is leaving, with or without them.

What options are out there?

While it can be painstaking to research every possible option for your company and its specific needs, that is the best way to navigate this process. Finding funding for your business is not a one-size-fits-all solution; your venture’s specific needs will determine your next move.

There is a new breed of lenders on the market, non-traditional banks that will lend to startups — but there is a catch. They tend only to lend against B2C sales. If you are a brand purely looking to fund your B2C stock, this could be a great option for you. However, if you are a company like Love Not War, predominantly looking to fund our B2B stock, this is unfortunately not a viable option.

We also recently came across some government funding that is open for those who can prove that they have exhausted all other avenues. This might be a potential avenue to pursue if, like us, you’ve been tearing your hair out over the lack of options.

The frustrating thing is: as an industry, sex toy manufacturing is incredibly lucrative. The market is predicted to maintain its upward trajectory and achieve significant global growth, yet this is something most investors are failing to see. The mindset shift that we’ve seen amongst mainstream retailers such as Urban Outfitters, Sephora and Superdrug has not managed to filter down to lenders just yet. That being said, we live in hope that the changing perceptions will come in time.

Tips for Overcoming Funding Challenges as a Startup by Will Ranscombe originally appeared in XBIZ

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