How to Quickly Raise Seed Capital
Entrepreneurship is like a 25-level computer game. If all that you can think of when it comes to startup financing is “write a business plan and shop it around to strangers,” you’re stuck at the bottom level. There are 24 more levels above you.
Savvy entrepreneurs know how to create startup funding using various tactics. One of the classics entails using what is called “mobilization capital” obtained from the startup’s own customers. In a nutshell, you get your prospective customers or clients to supply you with the capital required for you to then deliver your product or service.
Here’s a story of a how an educational startup funded its launch using this tactic:
Crowd funding looks like it could be a hit. $38k in a week. Looking for advice on where to get more exposure.
So, long story short, we spent two years building a new type of learning system but need to raise about $128k to build out the first full curriculum and apply for accreditation. I talked with some local investors (Silicon Valley), but the interest in education is not great. So, we did the math, and found out that if we could raise the funds up front, we would be able to build a very valuable program in not a lot of time. Since our classes are all built up front, and we will have already paid the professors, we could also offer the classes at a reduced rate to a small group of student “investors”. $1000 for 100 credits to be exact, about 4% of the normal cost. We still lose some money with student assistance and support as well as grading/evaluation, but we would lose equity or pay interest with any source of funding so it’s a loss we are happy to take.
The response has been incredible, with one post on /r/frugal getting over 20 students to sign up, and average of 9% of the visitors to the web site signing up.
So, without relying on spamming Reddit (I don’t mind buying advertising), I’m looking for ideas on where to spread the word. Also, if anyone is interested in taking a look at the site and details of the offer and has constructive criticism I would also greatly appreciate it. It is a bit ugly, I know, but working on that.
The trick to making to this financing tactic work for your startup is to:
1) have a product or service that your market really needs. This means that you need to be offering an aspirin not a vitamin. People with a pain will find the money to buy the aspirin that will make it go away. Vitamins, in contrast, are just nice to have if some spare cash is available.
2) Put together the right combination of inducements to persuade the customers or clients to pay you up up-front. There are also sorts of ways to do it this both the right and the wrong way. It’s a bit of an art form. So it’s important to genuinely understand both your market’s needs and what your company can provide without mortally wounding itself.
The mobilization capital tactic can also be used by existing companies to launch new lines. Finally, this tactic works well with revenue-based financing.