The other colors of money: if banks and VCs are out of your financial picture, don't despair. These 3 alternative sources of capital could provide the funding you're looking for

Entrepreneur, July, 2004 by David Worrell

Mitman sums it up: "There are a million options for you if you have an up-and-running company that's either making money or has assets. And if you're large enough, with a healthy balance sheet, you'll find capital even if you're not making money."

THE CUSTOMER'S ALWAYS RIGHT

Andy Birol, founder and president of Birol Growth Consulting in Solon, Ohio, has a funding source for companies in need of cash that's so simple, it's often overlooked.

So what's his answer? "Get customers to fund your growth by targeting early adopters--,those people who have more money than time," he says, As an example, Birol points out that the Palm Pilot was once priced at more than $1,000, yet early adopters happily paid the price. Those early sales helped Palm get the cash in and the price clown.

When cash is tight, young companies need to focus more on selling and less on fund-raising. An overemphasis on fundraising is one sign that a business suffers from the "if we build it, they will come" approach to sales. Instead, Birol suggests a new tactic. "I believe organizations have to focus on their best and highest use--what they do well, what they enjoy doing, and what customers have valued in the past."

"Focus, accomplish and grow" are the three tenets of business success, according to Birol. For more on the subject, check out his book Focus. Accomplish. Grow. The Business Owner's Guide to Growth, available on Amazon.com or at AndyBirol.com.

WHAT FINANCING MAY COME

Choosing from the variety of possible sources for financing may be as simple as going with the only option that will take you. Ideally, you'll have a choice of several alternatives. And, at least to start, you should have a good idea of what your preferred form of financing would be so you can go after the most comfortable choices first.

Your options will be dictated by several considerations, including how much money you need, how long you'll need it, what you'll need it for, and how much control you're willing to relinquish. For instance, if you need to raise several million dollars, then venture capital, a stock offering or perhaps a well-heeled angel investor will be your best bet. On the other hand, if you need only $10,000, hidden personal wealth or one of the SBA's microloans may be your best bet, Financing lasting more than a few years is usually going to come from equity investors such as VCs, angels or friends and family, unless you are financing real estate, in which case a bank loan would be suitable.

The reason you need the money win also come into play. A bank is unlikely to lend you money to allow you to increase your salami--that's going to have to come from someone with a personal interest to your business, such as an angel investor or a family member. That same family member, on the other hand, will be unable to help if what you need is an international letter of credit to wrap up an across-the-border deal. Matching your financing source to your need will eliminate many possibilities.

Control is another issue. If you want to maintain maximum control of your business, stick to hidden personal wealth, family, friends and bank financing. Angels, VCs and public markets are much more likely to want to see themselves or their handpicked assistants in the driver's seat.