Unlikely Sources of Start-up Capital

I had lunch with a friend last week, the former CEO of a bio tech company, who decided to start another business--this time, she was going to "partner" with local business associates and/or trusted advisors and associates to raise capital, instead of going the traditional venture capital route. To readers of this blog, you might think she decided to hit up Friends and Family--but no, she clarified, these weren't family and technically, not friends either. They are individuals she respects, has had an existing relationship with at a business level, and want a solid return on investment.

I asked her about the landlord who owned the building of her former company. She'd mentioned him on several occassios, and she indicated he was on her call list. The following week, he'd placed $50,000 start-up capital in her business. She says she can get product prototypes, a few channel partners and marketing efforts underway within six months. Her new product? Computer bags for women. The clincher? The investor's wife got really excited when she saw my friends designs, said she'd buy two.

Another source is your local nail/foot/hair salon. No kidding on this one either. I try not to get too personal in this blog, but on this one, I can't help myself. I've published several works of fiction, and until I hit the NYTimes bestseller list, I'm distribution directly to boutique retailers (less oeverall revenue but significantly higher margin). In any case, the manager ask me about my books, wonders why she can't carry them, tells me that she's been waiting 3 years for me to suggest she carry the inventory, with the final note that the salon services about 50 women or more a day, all of which could buy my Catacombs series books. I was more than a little shocked, and promptly gave her 20 books the following day. It was then that she offered to front the cost of next book (if it was going to be self-published), as she is looking for other investment opportunities.

From one small business owner to another, I forget how we, as entrepreneurs, are always on the scout for the next big thing, or even the next small thing that is feasible with a bit of money and low risk. I'd never in a million years considered talking to the salon owner. She's not a trusted advisor, or expert in publishing, but certainly has money to invest, didn't have crazy demands, and was genuinly excited about being involved in a venture from which her kids could directly benefit.

Here's a really unlikely source of capital. Your carpet guy. Again, this is a no kidding. A former client remodeled his business and decided to negotiate directly with the owner of the carpet distributor. During the negotiation, the CEO of the carpet company wanted to know why he should give such a steep discount for such a small space (housing less than 5 employees). My client espoused the merits of his up and coming business with all the enthusiasm of the standard CEO, and by the end of that conversation, they'd worked out an for an investment of capital as well as physical materials for the business.

The key for unlikely sources of capital is to stop long enough, look around at (other) small business owners and have a discussion. The worst outcome will be a no. And the best will be a yes that will get your further down the road with your business.

Have a success story to share? email me at sarahg@bmginc.com