Customer finance

Customer finance

Customer finance is a technique used by entrepreneurs to capitalize their companies. It is different from traditional techniques such as boot-strapping, angel finance, debt, mezzanine and venture capital.

Advocated largely by David A. Silver, customer finance can involve selling "problem" and "solution" definitions to your target market in order to raise money. For example, if an entrepreneur has focused on the problem of say "corporate alcoholism", he or she may send out subscription offers to a list of Fortune 500 companies detailing the problem in terms of loss of productivity, liability exposures, bad morale etc. The money raised from subscriptions would go to producing the solution, say a new herbal medicine- to be sold to the newsletter subscribers. So, in essence, the customer financed the venture.

Another approach to customer financing is "viral equity", used recently by Liam Mulhall of Blowfly beer. The company, in order to get started, sold equity to customers. From this perspective, making customers your shareholders, is beneficial in providing market research, capital, a customer base, a skills base and word of mouth advertising (people tend to advocate products they are invested in).

All in all, some people observe that customer finance is the smarter way to capitalise a start up- it goes beyond asserting "We'll go raise venture capital" or "I'll get a shag".


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