Sanjay Manandhar '89, SM '91, Founder & CEO Aerva, Inc
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The most common method of financing is one of angel and institutional money from VC and PE firms. However, not all businesses are a fit for these types of funding sources. Roughly 1% of the companies attract any angel/VC—so what do other ventures do? How did ventures get off the ground before the 1950s when the VC industry started taking hold?
Customer-funding is an attractive, non-dilutive method of funding. There is, of course, the chicken-and-egg problem of not having products to sell to customers, but needing funding to create the products. There are many ways to handle this—I will share one method Aerva used to receive customer funding early on.
Typically first customers are much larger than your new venture—and it may seem inconceivable why a larger entity might want to work with a smaller entity or a startup. In fact, startups have a lot more leverage than their founders may realize. Therefore, one can negotiate a win-win scenario, which can help your financing situation.
Along the way, there are many traditional, non-VC funding sources one can tap into, in particular once positive revenue trends can be demonstrated. After break-even and positive cashflow, even more funding sources become available, from bank loans, to institutional capital, which may even start chasing you, rather than the other way around.
Sponsor(s): Alumni Association
Contact: Elena Byrne, W98-206C, 617 252-1143, EBYRNE@MIT.EDU