I estimate that in 80% of cases an entrepreneur is just not ready to seek investment capital. Why? There is too much risk in the business still.
How do you reduce that risk without pitching for bank loans or investment from angels and VCs? It seems like a Catch-22 situation and many entrepreneurs give up despite having a viable idea.
There is, however, always a way to grow a good idea if the team is skilled and action-focused. There are many approaches to launching a business on limited resources, but here are six quick alternatives to explore:
1. Family and Friends
Pretty obvious, but worth mentioning. Don’t be shy about asking for the easiest money there is. But remember there is always a price to pay. It could be that you get a loan from a family member, a friend or associate. But whatever type of loan it is, make sure you get it in writing and be prepared for it to impact the relationship. You also need to be honest with those who loan you money about the risks involved. Be sure they would not be devastated by a complete loss of their investment. You don’t want to live with that kind of pressure every day. Overall though, this kind of loan may be just the start you need to get going.
2. Vendor Funding
This is where you use your supplier’s cash as an interest-free loan. To start with you should get at least a 30-day payment period. If your business model allows you to receive cash from the sales you make up-front, use that to the hilt. Extend that supplier payment period to 90 days if you can. In the meantime, as long as you are profitable you can use the cash to create more sales and still be able to pay the supplier back in time. Be straight with your supplier though – they may have to wait longer for payment but if you stick to your word you should have no problems.
3. Invoice discounting
If however you are the one waiting to get paid 90 days later, you can turn your invoices into cash immediately by selling an invoice to an 'invoice discounting' company. This means you will get approximately 90% of the money within the week. Depending on the credit-worthiness of your customer, you could pay around 2% of the invoice value. Better still, make use of a site like www.marketinvoice.com and try open-bidding on the invoice to get the best deal possible with the minimum of red tape.
4. Corporate credit cards
Not to be confused with your own personal credit cards, which I would not recommend using for business finance. Whichever bank you are with, get a corporate credit card. Use it as frequently as needed up to the initial small limit you’ll be given, and always pay it back in full and promptly. Ask for gradual increases in the credit limit and continue to pay on time. Within a relatively short period you can gain quite a substantial corporate credit limit. You can now use this to create more sales and to develop your proof-of-concept.
5. Asset finance
In bootstrapping mode the last thing you need is a big capital outlay. Do you need equipment or vehicles to start or grow your small business? If so, look at ways to avoid having your capital tied up in a depreciating asset. Instead keep outlay to a minimum by looking at renting. Failing that, look at leasing and then (HP) hire purchase. Remember that in the long run this works out as a more expensive approach, but in the short term you can use the cash you make to generate more profit and, again, develop your proof-of-concept.
6. Trade shares for services
What is stopping you getting started? Do you need £50k to pay a software developer? Do you need £70k to tool-up for a new product? Most entrepreneurs will go all out to try and raise that capital. But why not go straight to the developer or manufacturer and offer them a 5-10% stake in your business rather than cash in return for their services – or perhaps a mix of both? It’s not only quicker than seeking angel investment, but also much cheaper in terms of equity released. There are many developers, website designers and, yes, even UK-based manufacturers who will agree to this approach if the idea and team are credible.
Paul Grant is founder of The Funding Game and is running a series of workshops on the topic of raising capital for start-up. The next workshop, 'How to Fund a Start-up', will be held at the British Library Business and IP Centre on Thursday, 15th March 2012 from 1.30pm-6pm. For discounts and special offers on all Funding Game events subscribe to our mailing list. This article first appeared at MarketInvoice.com, an online marketplace for companies to sell their invoices to raise cash quickly.
How do you reduce that risk without pitching for bank loans or investment from angels and VCs? It seems like a Catch-22 situation and many entrepreneurs give up despite having a viable idea.
There is, however, always a way to grow a good idea if the team is skilled and action-focused. There are many approaches to launching a business on limited resources, but here are six quick alternatives to explore:
1. Family and Friends
Pretty obvious, but worth mentioning. Don’t be shy about asking for the easiest money there is. But remember there is always a price to pay. It could be that you get a loan from a family member, a friend or associate. But whatever type of loan it is, make sure you get it in writing and be prepared for it to impact the relationship. You also need to be honest with those who loan you money about the risks involved. Be sure they would not be devastated by a complete loss of their investment. You don’t want to live with that kind of pressure every day. Overall though, this kind of loan may be just the start you need to get going.
2. Vendor Funding
This is where you use your supplier’s cash as an interest-free loan. To start with you should get at least a 30-day payment period. If your business model allows you to receive cash from the sales you make up-front, use that to the hilt. Extend that supplier payment period to 90 days if you can. In the meantime, as long as you are profitable you can use the cash to create more sales and still be able to pay the supplier back in time. Be straight with your supplier though – they may have to wait longer for payment but if you stick to your word you should have no problems.
3. Invoice discounting
If however you are the one waiting to get paid 90 days later, you can turn your invoices into cash immediately by selling an invoice to an 'invoice discounting' company. This means you will get approximately 90% of the money within the week. Depending on the credit-worthiness of your customer, you could pay around 2% of the invoice value. Better still, make use of a site like www.marketinvoice.com and try open-bidding on the invoice to get the best deal possible with the minimum of red tape.
4. Corporate credit cards
Not to be confused with your own personal credit cards, which I would not recommend using for business finance. Whichever bank you are with, get a corporate credit card. Use it as frequently as needed up to the initial small limit you’ll be given, and always pay it back in full and promptly. Ask for gradual increases in the credit limit and continue to pay on time. Within a relatively short period you can gain quite a substantial corporate credit limit. You can now use this to create more sales and to develop your proof-of-concept.
5. Asset finance
In bootstrapping mode the last thing you need is a big capital outlay. Do you need equipment or vehicles to start or grow your small business? If so, look at ways to avoid having your capital tied up in a depreciating asset. Instead keep outlay to a minimum by looking at renting. Failing that, look at leasing and then (HP) hire purchase. Remember that in the long run this works out as a more expensive approach, but in the short term you can use the cash you make to generate more profit and, again, develop your proof-of-concept.
6. Trade shares for services
What is stopping you getting started? Do you need £50k to pay a software developer? Do you need £70k to tool-up for a new product? Most entrepreneurs will go all out to try and raise that capital. But why not go straight to the developer or manufacturer and offer them a 5-10% stake in your business rather than cash in return for their services – or perhaps a mix of both? It’s not only quicker than seeking angel investment, but also much cheaper in terms of equity released. There are many developers, website designers and, yes, even UK-based manufacturers who will agree to this approach if the idea and team are credible.
Paul Grant is founder of The Funding Game and is running a series of workshops on the topic of raising capital for start-up. The next workshop, 'How to Fund a Start-up', will be held at the British Library Business and IP Centre on Thursday, 15th March 2012 from 1.30pm-6pm. For discounts and special offers on all Funding Game events subscribe to our mailing list. This article first appeared at MarketInvoice.com, an online marketplace for companies to sell their invoices to raise cash quickly.
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