Seven funding options to get you to the next level

We’ve bootstrapped Shoes of Prey to date but we’ve been exploring the possibility of raising capital to help accelerate our growth.

As we’ve gone through this exploration process we’ve learnt about some different options for raising capital in Australia which I thought I’d share.

1. Incubators

Incubators provide capital and mentoring services to very early stage startups in exchange for equity. Y Combinator and TechStars in the US lead the development of the incubator model and Australian start-ups can apply to join their highly competitive to get into programs.

Two incubators have recently launched in Australia – Startmate and PushStart.

A slightly different take on the incubator model is Pollenizer.

Pollenizer takes a much more active role in the start-ups they’re involved in. With a software development and marketing team in house Pollenizer, help to actually build the business rather than just take a mentoring approach.

The much larger stake they take in the business reflects this but it allows the start-up to grow much more quickly. Spreets is a prime example of where the Pollenizer model worked exceptionally well.

2. Competitions

The University of Queensland Business School runs a competition called ENTERPRIZE.

While the competition is open to all Australian residents and their businesses, the competition winners have always been technology related and the site says that the judges are looking “for submissions that best capture the ingenuity and innovation which they feel could have the most significant impact in the market.”

The winning entry receives $100,000 in seed funding.

Tech23 is another Sydney based competition open to technology related start-ups. Tech23 offers a range of prizes for Australian start-ups totalling $150,000.

3. Government funding

The Australian and state governments offers a range of funding programs. This website provides a great list.

The ones we’ve looked into are:

Commercialisation Australia

This program is designed to help fund new innovative businesses developing valuable intellectual property in Australia.

We applied for this program but found out that the key to getting this grant is that what you’re developing must result in something that you plan to patent. We didn’t apply for a patent on our shoe designer so didn’t qualify for the grant.

R&D tax concession

The R&D tax concession provides tax benefits to businesses undertaking risky research and development work.

The grant is designed to encourage Australian businesses to invest in R&D. The R&D work must be innovative and risky in that it has a chance of not succeeding as planned, as opposed to making incremental improvements to an existing innovation.

The grant can be taken as cash (which generally works best for unprofitable businesses not paying company tax) or an additional tax deduction and franking credit (better for profitable businesses). Shoes of Prey is currently applying for its first R&D tax concession.

Export market development grant

The export market development grant provides a grant to qualifying businesses equal to 50% of the overseas marketing expenses for Australian exporters.

The grant is designed to support small Australian businesses sell their products overseas. Shoes of Prey received a $5,000 grant under this program last year and we’re applying again this year.

4. Friends and family

Friends and family can be a great potential source of funding for a start-up. No one knows you better and generally there will be few people as willing to invest in your business as your friends and family.

If you’re going to explore this path the key is to not take advantage of the trust your friends and family have and not behave in a way that might damage your relationship in the future.

Their investment will be risky and that needs to be clear at the outset. The valuation and the terms of the investment should be reasonable.

If your business is not successful that’s going to be bad enough, without it damaging family relationships or friendships in the process.