There comes a time when any entrepreneur needs funding to start or grow a business. Start-ups often begin with friends and family finance, to create a prototype / concept which they can pitch to angel investors who may offer advice and support as well as cash. Equity finance with advice and experience from past entrepreneurs is often called smart money. Banks, VCs, AIM and OFEX offer varying forms of institutional finance.
People money is more useful than institutional finance, but less expensive than smart money. It works on the notion that people choose to lend to companies they like, in a way that allows them to passively promote and support the business. In exchange lenders can be rewarded with higher rates of interest, we call this high value loans.
We summarise ‘People Money’ as the 3 Ps:
- Patronage – Lenders are invited to become customers. There is no customer loyalty programme like being invested in a company.
- Participation - In the business community, such as joining their social media groups, focus groups, events, mystery shop feedback and more
- Promotion - Being an ambassador for the business and part of the communication channel, by passing on word of mouth, forwarding email newsletters, retweeting messages etc.