Let me tell you the story of how I raised $100,000 to fill a gap needed to purchase a new home for my young family years ago. I had located a beautiful home that would be a stretch to finance, and had arranged for a first mortgage from the bank, and a second from the seller. Home values were rising so fast that I knew I had to move quickly.
So I went to visit a number of customer CEOs, told them my story, and asked them to advance some amount against their future billing from me. In return, I said, I would give them more time than originally contracted for, and certainly would treat the relationship as special from that moment on. Corny? Every one of the CEOs said “yes.” And I closed escrow on a home I could not otherwise afford, and which I continue to live in, after its value shot through the roof during the subsequent years.
I sometimes counsel CEOs to consider consulting to their prospective customers or in their industry while they are simultaneously developing their product for market. Consulting fees pay the bills, reduce the stress, and give people confidence in the business.
[Email readers, continue here…] If you are already purchasing raw materials or services such as development or programming, consider asking your supplier to be a paperless partner, showing confidence in you and your future business by granting you deferred payments. You might be surprised at the positive results, if your needs are real and you treat the relationship well by following through on your promises.
How about offering prepaid licenses to your product or a package of prepaid hours, or a discount for prepayment of purchase? All of these create special relationships with your customers, who show their faith and trust by advancing money to you before receiving products or services. Just remember that you must deliver as promised, and you are eating your meal before its time. You will have later expenses to pay when the revenues have already been received and presumably spent.
Strategic partnerships with suppliers, customers and others sometimes are an attractive way to share the risk and fund an operation. Creating a new company to do this is often a time and money drain, even if it seems easier to do this than to create a relationship within existing organizations.
These are just some of the ways to creatively raise funds without offering equity or taking on new debt. Since some entrepreneurs are completely adverse to sharing equity, and some greatly fear taking on any form of debt, creative fund-raising is certainly worth considering.