The Gaping Hole in Capital Funding

Along with countless other entrepreneurs out there it has been nearly impossible to acquire funding for my consulting firm, WIMS Consulting. It’s a constantly looping game of “chicken or the egg.” You can’t get a business loan or start-up funding without demonstrating two-three years worth of income. Simultaneously you can’t grow your business to a sustainable level without having an appropriate amount of capital. See the dilemma?

While I’ve been fortunate enough to walk this tight rope since I launched my business back in March, at some point the only way my business can truly grow is with additional external funding. Only that’s much easier said than done, as you can only operate on retainers and short-term projects for so long before the bills start piling up. But for professional service businesses like mine it’s difficult to show predictable and sustainable revenue in the beginning. It’s not only the case with consulting; it’s the same whether you want to start an accounting firm, a law practice, a hair salon, or photography studio among countless others.

Perhaps I’m just going about it all wrong? I certainly realize that’s a distinct possibility. To quickly digress, this isn’t meant to be a “woe is me” post, I may have to struggle now but don’t get me wrong, it’s been the most exhilarating and rewarding experience I’ve had in my professional life to date. But in case I’m not the only one stuck in this catch-22 let’s review the existing options out there along with their shortcomings.

The first one that comes to mind is going to an actual bank. Theoretically their sole purpose of existing is to give access to capital to those that need it, right? Ha! Unfortunately that is far from the case. They only loan money to those that already have it and don’t need it. Even when they do consider shelling out a measly slice of the multi-billion dollar pie they’re hoarding they make you jump through insurmountable hoops while holding you hostage throughout the entire process.

After banks the idea of peer-to-peer lenders came to mind. Companies like the Lending Club would be more understanding that I can’t provide two years of my business’ tax returns because I just started it, right? Wrong. It doesn’t matter how much money you made at your previous position, starting your own business deems those years of income moot.

Unless you have a world-changing technological innovation or company that can prove solid cash flow over multiple years, venture capital and private equity aren’t really an option. Not too mention the equity hit you’ll have to take for them to give you the time of day typically isn’t worth it either. Moving on.

I finally found the ideal solution, or so I thought. Crowdfunding is all the rage these days and the success stories receive a ton of media attention. While it has been a step in the right direction, and has done wonders for things like financing movies of old TV shows and launching innovative new products like the Coolest Cooler, it doesn’t help much when you’re starting another “boring” service business. I tried getting in on the action by setting up a GoFundMe account; sadly it still remains bare after several months. There remain challenges with this approach, but at least upcoming (still pending) changes allowing the incorporation of equity provides hope.

What’s left is the dreaded and awkward “friends and family” option, another far from perfect one however. This is especially true in my case as I personally come from a very poor family. While I’m generally very proud of that fact, it’s an unfortunate one when you’re trying to raise capital for your business. Yet, even when you get past the awkward ask and get to pitch to wealthy friend, it’s quite challenging to assure them that you will be able to generate enough revenue to be able to pay them back as these can be quite unpredictable businesses. You can’t blame them for being concerned, like any reasonable person they just want that elusive guarantee that their investment will be returned to them.

Despite this ongoing challenge, starting my own business from scratch has been one of the best decisions I’ve made in my life, and one I’d remake over and over again. And on a sort of related note, the best businesses always solve a huge problem that a large number of people face. Therefore there is a huge opportunity here.

When I became the CMO of the start-up (and soon to go live) Hathrup Capital Funding it’s clear that this is a problem that I personally can become part of the solution for, while helping potentially millions of people in the future so they don’t have to go through the same experience I have. I’m very much looking forward to the challenge.