Tempting fate: how far would you go to finance your startup?

Entrepreneur, Dec, 2005 by Julie Monahan

DEVA HAZARIKA, CEO at ClearContext Corp., a software company in San Francisco, once paid his business's bills with winnings from online poker. "Poker helped us bridge the gap between development and when we started generating sales," Hazarika says. He and his partner, Brad Meador, estimate their 10 hours each of poker time every week delivered a 10 percent return.

"Entrepreneurs do what it takes to be successful," says Joseph C. Picken, executive director of The Institute for Innovation and Entrepreneurship at the University of Texas, Dallas. "But [playing online poker] is not a serious way to raise funds."

Nevertheless, extreme financing has long been an option for early stage businesses with no access to loans, credit or investors. But even established businesses may be pushed to the financing edge. "It's more common now," says Jan Norman, a small-business expert in Diamond Bar, California. In her book What No One Ever Tells You About Financing Your Own Business, Norman offers some extreme examples: Jim McCafferty, founder of IMP Creative, a marketing firm in Santa Ana, California, once met payroll by entertaining as an escape artist; and Jane Bayer boosts income at Factfinders, her Lake Forest, California, information research company, by buying and selling reference books.

In most cases, Norman says, the entrepreneur is using existing skills or experience to raise money. McCafferty, for example, started doing magic as a child, while Bayer works with reference materials every day for her research clients.

To Picken, extreme financing is a short-term answer that diverts attention from other ways to raise money: "Hard work and demonstrating that you've got a viable product with real customers and a sustainable competitive advantage are key to obtaining [conventional] financing."