Creative Capital

By September 1, 2009blog

I met with three startup companies this past week that are considering how to fund their operations until they get profitable.

In one case, they were not planning on selling equity to raise money, but an unsolicited VC offered them real money at a really good valuation. They have several partnership deals on the table that could bring $500k in near-term cash to them and they are short-handed on a developer they would need to execute on that partnership.

They asked me whether they should take the investor $’s? For those who know me, know I had to bite my tongue very hard to NOT blurt out an answer of “hell no!” Why sell any amount of stock for capital that could be sourced elsewhere with NO impact on equity.

For example, we discussed, why not offer a developer/contractor the ability to share in the new partnership revenue up to 3X what they would have made on an hourly basis (in lieu of being paid upfront). Or why not go to the potential partner and strike a more favorable deal for them if they are willing to pay more upfront.

Unfortunately, raising capital has become SO synonymous with DEBT & EQUITY that I think we have forgotten that there are many more (perhaps better) alternatives to that. Another example that Jeff Nabers shared with me a couple months ago is offer people a share in revenues for providing capital, up to a certain return. For example, I give you $100k and you give me 10% of revenues until I get $200k back, no matter how quick or how long it takes. It’s not a fixed debt payment, it’s not equity, it flows more appropriately with the business and could provide more upside with less risk to the “capital provider”.

Need capital? Try to be a little more creative than the old, worn-out, boring, suck-the-life-out-of- ya, debt & equity models of the past.

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