Creative Financing for Startups: Mobilization Capital

Mobilization Capital

Although normally overlooked as a financing technique for startups, prepayment is a proven and effective means of raising capital without surrendering equity or taking on debt. It is used in many industries to mobilize financial resources for specific projects—hence, its name “mobilization capital”. The surprise to many entrepreneurs is that it can also be used to raise the equivalent of the seed capital needed to launch their business.

Prepayment, as a means of raising startup capital or expansion capital, can be obtained from customers under two typical conditions:

1) the customer perceives an economic benefit from the discount resulting from paying up-front (e.g., savings will result),

2) the customer perceives a social benefit from the recognition stemming from early financial support of an enterprise (e.g., prestige, status will increase)

There are numerous ways of obtaining prepayment from potential customers.  For example, most contractors require 50% deposits before commencing work. This is a legitimate and reasonable request when you must make cash outlays for the materials and supplies necessary to commence the work.  Many sophisticated technology entrepreneurs planning on selling B2B intentionally design their startup strategy to justify the provision of mobilization capital in the customer's mind.

Here is a real life example with a unique twist on getting prepayment:

Allerca, San Diego-based company started in 2004, by claiming an innovative genetic technique, that has “bred the world’s first hypoallergenic kitten, opening the doors and arms of millions of pet lovers for whom cuddling a cat has, until now, been a curse … After identifying the genes of kittens with proteins that provide less of a reaction in humans, they selectively bred litters over several generations to end up with an allergy-friendly super cat.” The company had started to collect deposits about two years before they were able to deliver first allergy-free kitten. Hypoallergenic kitten futures were sold for $4,000. Today Allerca sells allergy-free kittens with even steeper price tag of $6,000 with standard order delivery in 24 months and premium placement  in 12 months. According to earlier Allerca statements, tens of thousands of people have sent refundable deposits within the first months. Quick estimation shows revenues of at least $40 mln (sic)- more than enough to fund startup operations for years to come.

I devote an entire chapter to mobilization capital techniques in the Smart Startup Guide.

Additional startup financing tools

For financing businesses through government programs see government loans. If a large part of your startup financing is for commercial equipment consider leasing for your Business Equipment Financing.  

Comments

[Eric]

Peter,

Creative financing really is difficult for me. I owe $1000s in student loans, car payments, plus there's my living expenses, etc. It's hard to get anyone to give me a loan, especially for a business. Man, if I could find seed capital funding just to help me with my bills it would be awesome. I'm sure there are plenty of others in my position as well. Do you know of any organizations that could help me out?

[Caprinardo Delirio]

How to make money out of thin air!

I recently bought a refrigerator at Lowes. As an incentive, they gave me a $75 gift card. I have it right here.

It's not that they put money in a bank account - they just printed a card. I'm going to the store and spending $75. So, they have $75 in new sales on the books.

Lets say that one of every 375 Americans gets a similar deal. That's 59.2 MILLION DOLLARS of sales - "Poof!" - made out of thin air!

Freaking brilliant!

[Dilemna]

I have a choice. Start a business or stay a job I hate

I work for family in a job I hate. I can continue the job in another location, maybe make a lot and run the business on my own, it's retail but boring as fuck.

The other choice is start a whole new business, was thinking something like one of these sushi bars, but it's a bigger risk for me.

Oh, and lastly, I could just do nothing, which is what I feel like doing.

I have these options because the place I'm at is gonna close soon, even though I could take it over. My problem is I have very little motivation, spent most of my life working and not enjoying myself.

I just want to know from all the older success tards, is it worth working hard in a job you might enjoy, that might succeed?

95% of the people I grew up with have either done nothing, jumped from shitty job to shitty job, bummed on welfare, or relied on daddys bank account/trust fund (I have only worked for family for a few years, was working on my own b4), and and the best is a friend who slacked for years dealing drugs then became a cop :s

I just feel so betrayed by what I grew up believing, ie work hard, get reward.

Now all I can think is what if I do well in this, then look back and see all my years wasted again???

[Caprinardo Delirio]

If what you ideally want to do is nothing, then I'd suggest you don't start your own business.

Starting your own business means that you will be working lots more than you do now, and taking lots more risk.

[Dilemna]

what is a good business to get into?

[Loki]

depends on where you are: find the need and fill it.

if you work hard, great rewards are not a sure thing. if you sit on your ass, the shaft is a sure thing.

fortune favors the bold. go for it if it's a business you like... or find one that you DO like...

[Dilemna]

I have a friend who started an auto repair business with no car experience at all. He simply leased a building, bought some equipment and hired a mechanic. Now he's rolling in the money and spends most of his day doing whatever it is he wants.

[Caprinardo Delirio]

You will not succeed unless the company involves something you strongly believe to be good--the goods or services the company sells, the way the company relates with its employees, what benefits the company offers its community or the world--and preferably many things you believe to be good.

Another poster was absolutely correct in saying you should not start a business if what you really want to do is "nothing."

[Susan B.]

Peter, kudos to you! I love your prepayment concept. As author of the book, The Quality Life Plan, I offer ways to do personal finance without the need for credit and debt. My strategies are based on understanding how the banking system works -which we are not taught. Anyhow, I also talk about new ways to invest, people-to-people that can increase cash flow. It has to do with investing in start-ups directly.

I think the reason there's not more creative ideas like yours out there is because people have been lulled into complacency by the ease of getting credit. Then when they are over their heads in debt, they are hard-pressed to think creatively! It's a vicious cycle we need to break one person at a time! Thanks again!

[Leo]

I'm currently founding a company and we're in the process of developing a prototype but I'm having a major problem: I cannot FIND any angel investors, as in I have no clue where to start.

I scour the web and find big name ones who are busy, but it's fairly hard to find angel investors close to home (Vancouver, BC) that don't require me to pay them thousands of dollars just to tell them my idea and show off my prototype.

Anyone have any ideas?

[Gandy]

Remember that Ron Popeil device that put studs in clothes? Thinking about marketing one to teenagers that puts them in human flesh. Ideas?