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50 questions: What are the alternatives to venture capital?

By on March 23, 2011

Together with Nic Brisbourne of The Equity Kicker / DFJ Esprit, I am writing a series of 50 questions you should ask when raising venture capital. We expect the series to run for a year, after which we will collate the answers into a book. We view this as a collaboration, so please comment to help make this series even more useful.

This series is all about raising venture capital. Yet it can be critically important to think about whether venture capital is actually the best option for your business.

Nic has already answered the question “Is venture capital right for your company?” Today, I’m going to look at some alternative sources of finance. The key ones are:

  • Revenue
  • Government
  • Banks

Let’s look at them each in turn.


“I did every horrible trick in the book to get revenues” – Mark Pincus, Zynga

Revenue is the cheapest form of finance. It requires you to pay no interest nor to give up equity in your company to outside investors. It is, in many ways, the best form of finance. For many early-stage companies, it is also the hardest.

The good news is that in this world of Internet distribution, startups can launch products with hardly any upfront capital. Barriers to entry keep getting lower and it is possible to launch a product on a fraction of the budget needed only a few years ago. You can:

  • Use scalable infrastructure that grows with your business, such as Amazon Web Services and other cloud services
  • Outsource many parts of your business such as billing, web hosting, even marketing
  • Release only 20% of the finished product and iterate over time, all while generating revenues
  • Use the free (to an extent) distribution channels of Facebook and the web

These changes mean that the traditional role of venture capital is less necessary than it once was, and many small teams or existing developers can become publishers without raising any capital at all.


Government has a range of different reasons for subsidising, supporting or investing in startups. The primary focus is job creation (and hence generating tax revenues in the future), but other reasons include supporting research and development and helping build clusters of expertise in certain regions.

I am based in the UK, which means that my specific recommendations are based on British regulations, but many of the comments apply globally.

Government help can be broadly broken down into:

  • Grants
  • Tax credits

Government can provide other useful, practical support (networking events, training, mentoring etc), but these are not alternatives to venture capital.


Grants can be aimed to stimulate regional investment, to encourage early-stage research and development or to achieve specific policy objectives. The best place to start may be your local Business Link (or equivalent). If you are from the games industry, talk to your games development body or screen agency.

Here are a list of a range of recent government fundings directly into the games industry:

Tax credits

These vary from region to region but can encompass:

  • Schemes to encourage investment in startups (such as the EIS scheme in the UK)
  • Industry-specific tax breaks (in Europe, these need to meet a “cultural test” to satisfy EU competition rules)
  • Region-specific tax breaks, which may or may not be industry related
  • Research and development tax breaks

Since the financial crisis, these have been harder to come by, but different regions have different levels of tax incentives available. The best advice, as always, is to network. Talk to other entrepreneurs. Ask government officials. Attend the free seminars offered by tax professionals (but be prepared to walk away from their pet schemes if they aren’t appropriate for your business.)

On balance, I prefer to get money from revenues or investors, rather than government. Government doesn’t always move fast, and it has different priorities to most ambitious entrepreneurs. But it can be very helpful in the early days of a company, and may make the difference between a startup getting off the ground or dying stillborn.


“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” Robert Frost, poet

Banks are not an easy source of finance. The risky nature of startups makes it hard for banks to lend in the early stages. On the other hand, banks are accessible and can help with the inevitable cash flow hiccups of building a company.

You will need a detailed business plan. Remember that banks don’t fund projects; they lend against predictable revenues. It’s no good showing them the big contract that will pay off big in six months time. They want to see a steady trickle of income. (In this they are totally different to equity investors – but you already know that if you are reading this series).

How might you get money from a bank then?


In this current climate, banks do not want to make unsecured loans. They have too many shaky debts on the books as it is. Unfortunately, few startups (and fewer technology startups) have any assets that the bank will accept as security.

Most of my experience is based on games or web companies. In my experience, it is close to impossible to get an overdraft of a size that would make a difference to a startup’s cash flow without providing the security of the homes of the directors. Whether this seems like a good idea is, of course, up to you.

Invoice financing

I have started to see examples of banks being prepared to offer overdrafts on the basis of invoice financing. Basically, if you have regular cash flow coming in, the bank may advance you a percentage of that cash flow as an overdraft.

Enterprise Guarantee Scheme

In the UK, banks can get additional comfort from the Enterprise Finance Guarantee, which provides government backing for 75% of the value of the loan. Unlike previous schemes, lenders are not allowed to take security over your home for the remaining 25% (although they can ask for a personal unsecured guarantee).

The question of whether or not lend still remains with the banks, irrespective of the Enterprise Guarantee Scheme.


These are not the only sources of finance, but these (alongside equity) are the main ones. My conclusions can be summarised as:

  • Revenues: The best and cheapest source of finance available. Hard to achieve
  • Government: Often few ownership strings attached, but paperwork hoops everywhere, and government’s incentives are often not aligned with those of entrepreneurs
  • Banks: Like companies with steady, proven cashflows or assets they can back. Which makes them wary of most startups without a personal guarantee from investors.

Now you hopefully have a good picture of the alternatives in case you decide that equity investment is not for you.

How to Publish a Game packshot

Some of this advice is taken from How to Publish a Game, my guide to self-publishing a game. It contains an entire chapter – 35 pages – dedicated to the art of financing a self-published game. You can find out more at

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: