Six months into founding my dream toy company, Build & Imagine, I landed a meeting with the Venture Capital firm I had most admired.

These weren’t the biggest players in Silicon Valley, but they had a fresh entrepreneur-friendly approach and had invested in early stage companies in my product category. I like them so much I had even applied to intern with them a few years back when I was wrapping up my MBA at Berkeley. So, I was prepared to give the pitch of my life to get the funding my startup desperately needed, right?! Wrong. I was there just for advice.

Sometimes Venture Capital money is not appropriate for your business. This article is about how to identify when that may be the case, and where to turn for alternative sources of funding.

Hints VC Money May Not Be A Fit For You

I am going to assume that you have an awesome business/product concept with impressive growth potential and demonstrable traction and that you’ve put together a great team. Despite this, it may be hard to land VC funding. If many of the following are true about your business or you as an entrepreneur, you may want to think twice before chasing money up and down Sand Hill Road:

  • Non-tech!
  • Hardware/physical product (though this is starting to change thanks to successes like FitBit, Nest and Oculus Rift, as well as more affordable components made available by the smart phone revolution)
  • Seasonal business
  • Hits based
  • Mature or declining industry
  • Profitable growth model (read: slow)
  • Going rate for acquisitions in industry is 5X profits rather than 50X revenue
  • You are not a white or Asian male in his twenties or thirties wearing a hoodie. Unfortunately there are additional hurdles for those why do not fit the model VCs have developed for what a successful entrepreneur looks like. "Pattern matching" as well as lack of access results in gender and race biases.

Most VC firms have a narrow scope of company types in their portfolio. One firm may invest only in mobile consumer while another invests only in health tech, for example. They do this for several good reasons including that it allows them to develop an expertise in a category so they can better add value and spot winners. It also meets the needs of their Limited Partners who are looking to diversify their investments by placing their money in different buckets, not by having the VC firms they invest in choose a hodgepodge of investment types.

What this means is that if you fall outside the investment trends and a firm is not actively seeking companies who do what you do, in the stage that you’re in, you may struggle to find a fit. Add additional hurdles such as a mature seasonal industry or a lack of personal access to venture capitalists, and it will be a challenge.

There is also the possibility that you are not interested in VC money. It comes with a variety of conditions, including a strong push for growth above all else, that may be at odds with your entrepreneurial philosophy. When this is the case, it’s best to explore alternative funding.

Sidenote: Out of the list I wrote above on conditions that may mean your business is not suitable for venture capital, all of them are true for my business Build & Imagine. I am a woman (a mom!) pursuing a profitable growth business in the somewhat stagnant toy industry with a physical product that is sold largely seasonally. And I’m gonna rock it!

Not On The VC Path: Now What?

I took an excellent 15-week course on New Venture Finance while getting my MBA at Haas. It prepared me to seek VC funding for a tech-based business. I knew the model and the fundraising trajectory for this type of business. I had even experienced it in person at the last 5 startups I worked for. When I identified that my company could not follow this path, I needed to formulate a new conceptual model for both early stage and growth fundraising. I did what I would advise you to do: I researched and networked to explore my options.

  • I cold-emailed small toy companies who has successfully gotten off the ground to ask for advice (a good 25% engaged with me)
  • I struck up conversations with other entrepreneurs at tradeshows to learn their funding stories
  • I leveraged my startup accelerator (Skydeck | Berkeley), alumni network, and previous employers to land meetings with VCs who have invested in consumer products. Since the context of these meetings was for "advice" rather than a pitch, I freely asked what would prevent them from investing in my company. I then asked for advice on where to go for early stage and growth capital since I don’t fit the mold.
  • I read the histories of companies in my industry with successful exits
  • Once I realized that Private Equity could be an option for growth capital further down the line, I secured meetings with several investors (again for "advice") to understand what my company would need to accomplish to be attractive to them
  • I researched SBA loans and contacted all the local organizations who do SBA to understand the loan requirements
  • I researched grants for women and NSF grants
  • I talked with entrepreneurs who had crowd-funded and reviewed successful projects
  • I read the Shark Tank application and then met with their producers

All this research helped me to construct a new conceptual funding path for my business. It looks something like this, from early stage through growth and then world domination:

bootstrap > grants > crowdfunding > angels > angel groups > profitable > line of credit > strategic investment > private equity > and finally acquisition

In terms of what I’ve done thus far to fund Build & Imagine: bootstrapped prototype with $15k of my own money, got a tiny private grant, engaged with NSF in a grant application and realized it wasn’t a fit, raised $30k on Kickstarter to fund product design, tried to interest angel groups and failed, and just closed $600k in individual angel investments to fund manufacturing and market entry. Hurray!

In the short year this company has existed there have been many times I’ve wondered if we’d survive to the next step. I am very proud to say that our first three magnetic building sets are now available for pre-order and will be shipping in November. If our toys are well received this holiday, we’ll reach out to angel groups, and maybe Shark Tank (seriously), for next stage capital. If we need to make some revisions to our plan/product and retest in the market next holiday season, we’ll stick with individual angel investors and extend our runway with revenue.

What is appropriate for Build & Imagine may not be appropriate for your company. In fact the whole point of this article is to get you to think about investment fit and to encourage you to explore your options. You need to get out of the building and talk to people to construct a meaningful framework. Then be open to that framework evolving along with your company’s progress.

15 Alternative Funding Examples

Below is my list of alternative methods to Venture Capital funding. I’ve included both seed stage and growth financing and noted a few of my experiences with them.

1. Revenue

It’s worth saying, and putting first on the list. Revenue is empowering. Profits are even better. Easier said than done.

In addition to keeping the lights on, early revenue can help with Customer Development by providing feedback from real customers. Eric Ries, who is now a frequent speaker on Lean Startup methodology, launched his avatar based chat application IMVU after just a few months of development. He was able to get revenue and feedback on his minimum viable product and grow it into a success with more than 40 million users. To be fair, IMVU did take venture money along that growth path, but they got off the ground by prioritizing early revenue and customer involvement.

Simple But Needed is a fellow startup at SkyDeck | Berkeley accelerator program that creates risk management mobile software solutions. As they built out their initial product they offered consulting services on the side. The custom mobile applications they built, ranging from a promotion for a rock band to a potty training app, funded the development of their core product. Once they had customers for their core product they phased out their consulting services.

2. Friends And Family

It always annoys me when I hear experts say that friends and family should be your first source of external capital. My brain typically responds, "I don’t know who your friends and family are, but mine are not rich investors!" But the thinking is this: if an entrepreneur can’t convince those who know her best to believe in her business, why should anyone else invest? It makes sense.

If you are in the lucky position in which Friends & Family funding is a possibility, pursue it! I was pleasantly surprised that my personal network was interested when I began fundraising. I was then confused to hear that since some of my investors weren’t accredited it was going to place a lot of legal restrictions on my fundraising. If you take non-accredited investments, consider allowing for at least six months to pass before your next fundraising round to allow these restrictions to lift.

3. Government And Private Grants

If your product has an educational or for benefit angle, I highly recommend grants as a starting place. I was particularly interested in National Science Foundation SBIR grants due to the educational component of our product (building with our toys helps girls develop foundational skills to succeed in science, technology, engineering and math). SBIR grant money is really for R&D of new technology and I needed executional money, so it didn’t end up being a fit.

I saw first-hand at my last startup Sifteo, that NSF and other grants can be a major help both financially and for credibility purposes. Plus, grants don’t dilute your equity. Tip: begin engaging 3-6 months prior to the application due date.

4. Accelerator Programs

Startup accelerators such as Y Combinator, 500 startups, Start X, and my own Skydeck | Berkeley offer office space, mentorship, and often cash in the form of a convertible note. For example, founder.org provides participants with a $100k convertible grant, training, and connections. This is a new phenomenon and the number of these programs is exploding. Here is a list of top accelerators.

5. Consumer Crowdfunding

I had a successful Kickstarter campaign where I raised 150% of goal and $30,000 to fund our design stage. Consumers essentially pre-ordered the product before it was even designed. Crowdfunding can work well for physical products that have consumer appeal. Indiegogo is another top platform for this purpose. Note that "if you build it, they will come" is rarely a winning strategy for crowdfunding. You need to be prepared to drive traffic to your project. I was surprised how few of my backers came from the existing Kickstarter community.

6. Accredited Investor Crowdfunding

This category of equity based crowdfunding is an exciting new frontier. Accredited investor crowdfunding is an efficient way to combine money from a lot of different angel investors – saving a lot of time and increasing your access to investors. It works best with a respected lead investor who other investors follow. I’ve heard good stories of AngelList being used for this purpose, as well as CircleUp (particularly for food brands).

Because the laws around this are still being fleshed out, pursuing equity based crowdfunding can sometimes scare away future investors and make your lawyers cringe. Be sure you only do this on platforms that require "accredited" investors.

7. Individual Angels

For Build & Imagine, individual angels were strategically aligned with our go-to-market fundraising goals. I just closed $600k in angel investments to fund manufacturing, marketing, and distribution.

Individual angels are usually high wealth business people who make a variety of investment. They tend to approach investing in startups less systematically than VCs and Angel Groups, so they may be open to product categories and business trajectories that don’t fit the VC criteria. They may or may not be interested in being involved in the business as an advisor. For them, investing is personal.

To interest angels, I needed to tell a compelling story about the company’s potential and demonstrate traction with product development, a patent application, and retailer interest. As importantly, I needed to find investors who shared my passion for providing girls with the building blocks to become tomorrow’s innovators.

I started with my personal network as a base to find angel investors. One introduction from a friend led to my lead investors, who then opened up their network to me leading to an additional five investments. Once you establish terms and sign the lead investor it becomes much easier to get additional investors to join. A similar story happened with another contact, a former classmate from Haas whose interest led to seven investments from his extended network.

If you don’t have any ties to investors, you can search for aligned investors on AngelList, although I found that the resulting cold emailing did little for me. Warm leads from an existing investor were much better.

One thing I learned during my outreach is that geography does matter. I live in the Bay Area so it was natural for me to fundraise here. I quickly found that angels here think like technology Venture Capitalists and therefore were not as open to investing in toys. Think about where the hubs for your industry are. Look at who has funded similar businesses. For Build & Imagine, New York was appropriate.

8. Angel Groups

Angel groups are organized angels who review deals and invest collaboratively in order to make better decisions and increase their deal flow. I applied to Berkeley Angel Network, Pasadena Angels, Harvard Angels, Astia Angels, and got to the final forum stage with Golden Seeds. Other notable groups include Keiretsu forum and Band of Angels. The review process is long and slow so if you go this route plan for 6-12 months between application and closing.

I found that Angel Groups were not a good place to go for seed stage funding. I plan to return to them for early stage growth funding. During my pitching to them and the resulting feedback I received, I got the sense that they were conservative investors who needed to see sizable revenue. If you are at the appropriate stage for Angel Groups, they are a viable way to raise up to $2 million.

9. SBA Loans

The government has created a variety of loan types to support small businesses, which is awesome. Learn more about them here.

Usually community banks are the ones who offer these loans. I was very interested in this as a path to fund my inventory, and felt my for-benefit mission would appeal to the community banks, so I met with and applied to a number of banks.

While the SBA program is great, I found it discouraging that all of the individual banks I spoke with added their own criteria/restrictions for loan approval. For example, they all asked for me to personally guarantee the loan, which would put my husband’s house and money on the line. While I am personally comfortable with high levels of risks to make my startup work, it does not seem fair to one’s family to wager the full family’s finances. If you are willing to guarantee loans with your personal finances or demonstrate that you’re already funding the majority of the project with personal finances, SBA could be a good option for you.

In accelerated fashion, the rest of the list:

10) Private Equity Firm: Once you reach $20 million or so in revenue a Private Equity Firm could be the way to go for growth capital.

11) Investments from your customers: Customer pays for the development of your product—I love this!!! This means you are solving a major pain point. Kickstarter is a form of this, but it can work well with B2B as well.

12) Vendor financing: Manufacturer of your product extends terms until you sell the goods. If you secure this deal in year one, mentor me. You are my hero.

13) Purchase order financing: Finance company advances funds to a supplier to fulfill an order. This is what educational toy leader LeapFrog did to finance their year 1 production run of 40,000 toys.

14) Startup competitions: Going after the prize money as well as connections that could lead to investment. Build & Imagine won $2,500 participating in LAUNCH, for example.

15) Strategic Investments: Partnering with a company who is strategically aligned. At a startup I worked for we had a $3 million five-year loan from a competitor/partner (it’s a fine line) in exchange for promoting their products on our website.

—Laurie Peterson is the founder of Build & Imagine, a toy startup creating constructible play-sets to get girls building.

This article originally appeared on Laurie Peterson and is reprinted with permission.