In recent years, startups have found it harder to get funding from traditional sources such as banks and venture capitalists. But since the need for cash grows with the company, many entrepreneurs have had to get creative to find alternative funding sources. When my tech company couldn’t find funding a few years back, I started looking into a source not typically associated with innovative technology: a local bakery. In late 2008, at the deepest point of the financial turmoil, I began talking to Polarbröd, a large, 40-year-old, family-owned bakery in Sweden. Although our businesses were in completely different industries, Polarbröd understood the potential of investing in an up-and-coming company such as Nordic River. What at the start seemed like an odd partnership has turned out successfully for both parties. If you’re interested in securing alternative funding for your small business, here are a few tips:
1. Make your weakness a strength. Originally I went to Stockholm venture capitalists in search of funding, but we were a company far away on the Arctic Circle in northern Sweden, which they saw as a problem. I decided to make it a strength. We changed our name to Nordic River and started to focus on the benefits of our location: living costs make lower-than-Stockholm wages competitive; local jobs are appreciated; staff is loyal; ours is the coolest company in town; and we became the biggest fish in a small pond. That’s how Polarbröd built its business 40 years ago, and the company’s management trusted that this could work for us as well.
2. Don’t be secretive. The most common mistake made by emerging startups is being overly secretive. Entrepreneurs dare not talk about their ideas, afraid of theft by somebody who would pursue their goals better, faster, or cheaper. However, to find the unexpected investor, you need to network, which means talk, talk, talk. Word-of-mouth in the local community helped us find Polarbröd.
3. Remember that there is no single standard source for alternative funding. If it were standard, it would not be alternative. In order to reach the non-standard source, your network should carry genuine, exciting information. You are only a few steps of separation from people with big money, but if you try to keep your business a secret, you’re not likely to cross them.
4. Gain trust by asking for help. Investors are investing more in you than in your business. Your biggest asset is trust, and the best way to gain trust is to ask honestly for help. Tell them your worst business fears, the biggest risks, the largest problems. They might not have the answers, but discussing problems and experiences is the fastest way to build a trust-filled relationship.
This article was written by Tomer Shalit and published by Bloomberg Businessweek.
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