Creative Financing for Your Startup

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.

www.turingcollege.org

(Source)

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.

 

7 Responses to Startup Capital From Crowd Funding

  • Making your customer an investor, Henry Ford did it using
    his employees getting them the finance to build their own
    cars, he knew that if it were their money the product would
    be perfect and easy to sell around town.
    These days we all have a great excuse for up front payment
    customers understand that credit is just a promise to pay the
    argument goes that if Lehman Brothers can go bust then what
    are the chances that my customers will end up a “busted flush”
    taking me with them.If you introduce me to new business that
    pays me then I can include your order on short term credit.
    There are many ways of getting a deal in the Far East there is
    no such thing as credit LC at sight,50% down the rest TT or the
    doors right behind you!.
    The Chinese rule on the basis that even god pays cash and in him
    they trust. So what chance do you stand? There are no credit terms
    at your local store and the way you start is the way you finish.

  • We see this happen (good ideas get early funding) through our crowdfunding site on a regular basis – love it Peter! The site is http://peerbackers.com if anyone wants to try. (There is no fee to post)

  • Given the exposure I have had to the VC community out here in SV, I’m very flattered this post showed up on antivc. The response to our $1000 offer has been amazing, and given the project a swift kick in the ass. Aside from the funding, and students (which we need), we have had offers from teachers and potential collaborators. Of course, we’ve also been called scam artists, but that’s almost inevitable in today’s cynical climate. This really has been the one of the best decisions we have made in the short history of the company.

    I will be taking a look at peerbackers.com (Thanks Sally). If anyone has any questions I could answer about any aspect of the project, please email ben at turingcollege.comor visit the web site.

  • Peter, we might be able to employ a technique such as this but we’re not a school. Does the Smart Startup Guide show how other businesses can attract mobilization capital?

  • John, yes it covers dozens of ways to get money up front from customers.

  • Russ Phelps here, Killer Copywriter and Marketing Maven, weighing in…

    Customer financing is also an aspect of marketing leverage.

    It’s used all the time in direct marketing – for example, in sales of memberships, subscriptions, and some services which are prepaid or offer recurring payments.

    Need killer sales copy?

    I offer my services to you and your contacts as a direct response copywriter and marketer with 600+ completed projects since 1978.

    See my LinkedIn profile for details, and check my box.net files for samples of my work.

    While you’re raiding my box.net files, be sure to grab a copy of my ebook titled
    “7 Steps To Killer Ad Copy.” Free. Gratis. Complimentary. No charge. Enjoy.

    What are you working on?
    What do you need?
    How may I help you?

    I like to connect with successful marketing-driven entrepreneurs, visionaries and business owners, some of them already successful in spite of themselves, who could kick it up a notch with my help.

    I also want to meet marketing managers and creative directors of companies who could hire me for a fresh creative approach to their copy and marketing.

    Please realize I have zero expectations or requests that you spend lots of time prospecting for me – that’s my job – but please just keep in mind my specialties, and know that I am available to you and your contacts if and when the need arises.

    Best regards,
    Russ Phelps

  • Hi, I recently started a marketing and event promotion company called Soulful Nights Enterprises. I have an extensive background in event promotion and multi-media design. So what I decided to do was create a series of marketing channels for small businesses in the Chicago-land area.

    Included in this series of channels is an internet radio station, a blog with over 20 different contributing writers, mainstream artist endorsements, models (brand ambassadors), radio personalities from (NY to LA) and most of all a dynamic presence in social media. My team and I can develop different marketing tools in house from basic graphic design to video work. This is the area we create the majority of our income and gain potential clients. The goal is to create a one-stop shop for the marketing needs of a start-up business. To make what we offer more attractive we created packages to make the process easier to understand for the clients and more cost effective as well. This gives them a simple way to determine what have are the tools they need.

    We offer our clients transparent service and we deliver on or before deadline and have plenty of proof as to the things we have done and can do. The dilemma is we need to expand our operation to more people and need more capital to host larger events, buy more equipment and hire more people to expand the our brand and service our clients. We’ve gotten this far however, we have a written business plan but because of our age most banks wont talk to us seriously. can anyone please offer some insight.

    Charious McLaurin
    Charious.McLaurin@gmail.com

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