Plan B for Funding: Do It Yourself

By Josh Catone
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Last week we published a list of five ways to fund your startup that didn’t follow the traditional “seek money from venture capitalists or angel investors first” route. This week, on the American Express OPEN Forum web site, entrepreneur and venture capitalist Guy Kawasaki wrote about his “Plan B for fundraising” that closely echoes some of the methods on our list.

Kawasaki’s Plan B requires no traditional venture money until you need it, he says. And it has a lot less pressure attached than the traditional “Plan A” method of raising large amounts of capital from VCs or other investors.

Rather, Kawasaki advises that entrepreneurs — and he says this will work for both tech and non-tech ventures — “dig, scratch, and claw yourself to $100,000 of funds from your friends and family,” cutting costs along the way as much as possible. Take no salary, keep your day job and build your product on the side, don’t pay for tickets to conferences, just hang in the lobby of the hotels where they’re held, live with your parents, etc. Kawasaki doesn’t say anything specific to funding that we didn’t suggest with our post last week, but he does give some valuable advice for steps to take after you raise that first $100k.

Both methods require a small miracle to succeed at what you’re creating, he writes, but Plan A will require “a bigger, faster miracle to make everyone happy.” Put off playing with other people’s money and you’ll have more time to tinker and perfect your product or service.

That Kawasaki, someone who has been a traditional VC and more recently has been launching self-funded, low-cost startups of his own, is endorsing alternative methods of funding is a great thing for entrepreneurs. The barriers for entry for web businesses have fallen drastically since the early 2000s and the more investors who embrace the idea of small, seed investments in young, talented entrepreneurs, the more spread around the money is and the more funding opportunities exist for everyone.

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  • The problem with borrowing from your family is you have to succeed in the end and give everyone their money back. I prefer bootstrapping. Credit cards, and your own money is the way to go. When you go down in flames you go on your own. Of course getting a couple million dollars in venture capital is always the way to go.

  • Yep. I would look within myself for possible sources of financing before I reach out to investors.

    Funding your business with money from investors might appear the easiest route but more often than not that’s not the case. Investors bring in their own additional baggage of hassles along with them. Not only do you let go of a part of the ownership of the company, you also sign away a considerable control over your company. On the top of that, there are a host of legal, tax, and many other issues that need to be dealt with making the scene a lot messier. Finally, if things go wrong and you have a particularly obnoxious investor, you’ll be lucky if you get even one night’s good sleep.

    Borrowing from friends/family is just as much dangerous. As a matter of fact, if you want to loose your friends, have them invest in your business. Only in rare situations will you find a friend who truly understands the nature of your business and is able to put up with the risks and ups-and-downs that come with it.

    I wouldn’t use Credit Cards either if I have other choices because they are very expensive form of financing. With outrageous interest rates they cost you a lot more than other sources of funding. Credit cards are good choice only when you have a short-term financial need and you expect to repay fairly soon.

    Instead, I will do it all myself with my savings if I can afford to do that: cut down costs to bare minimum, spend sparingly, stick out with your day job, and operate from a very modest office (bedroom is fine at times).

  • Johnny Ramone

    Why do people have such a problem spelling “lose” correctly??? Its LOSE not LOOSE!!!

  • I don’t think I would like to start a business in a 100k minus already. Honestly. I starte my small web design firm from some savings. I needed to register it and all the legal stuff. I pay an accountant. Keep my other job to have some more money. It’s still very small but I have been on a profit since day one because I didn’t want to put myself in such a huge financial deficit. Maybe in 1-2 years I will have a regular office too and some employees.

    The idea is that I’d be scared to start with such a deficit. Maybe I won’t do design for the rest of my life and get into something even more lucrative, but I’d base my expenses on my profits I make now and not blindly go and get so much money from others. Any investor would like to put his/her nose in my jar too and that’s also something I don’t like.

    Maybe the best idea is to start something small, earn more money and develope. I won’t be a tycoon too fast, but at least i can sleep fine at night.

  • MartinLav

    A couple years ago, we founded a start-up as a side project. My partner and I were both working fulltime as web entrepreneurs, mostly consultatant jobs and affiliate marketing.

    We took a great part of our salaries and put it into the project. We ate cheap meals, lived in a smaller apartment etc… we could have lived a good life, as we both earned high-middle class salaries. At some point we got caught up in high debts because of the project, and had families to help us.

    Today, we’ve pushing about 4 millions page viewed daily and growing, mostly from type ins. We are the market leader in our niche, and we have been doubling the profits every year. We’ve been offered enough to have a good life just from the interests.

    The arrangements with family was pretty clear, but some family members seeing our success, expect more then what we arranged… it created friction.

    As a successful self-founded entrepreneur, I’d discourage bringing family into it if you don’t absolutly have to.