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Think you need investors for your coworking space? Here are four alternative ways to get funded.

12 minute read
by Alex Hillman

I’ve been where you are.

About to open a coworking space with limited cash. Banks don’t want to talk to me (a business with no track record isn’t a great candidate for most loans).

What about investors? Depending on where in the world you are, or your experience in business, you’re likely to encounter the reality that lots of people don’t really “understand” coworking, so convincing a funder is even harder than convincing potential members about the value of this idea.

Gatekeepers, ugh. Amirite?

Indy Hall is famously bootstrapped, largely by following a path of building our community before we even went looking for spaces. I’ve helped hundreds of coworking founders start coworking communities this way, too.

**But once you’ve got the community…how exactly can you close financial shortfalls? **

Nearly every day of the week week I get a question from someone about pitching investors for their coworking space…and my first question is “what other funding sources have you tried?”

The answer is almost always “none.” At most, they’ve applied for some small business loans, pitch competitions, or possibly even are thinking about a crowdfunding opportunity.

That’s when I remind them that I’ll do almost anything to avoid having an “investor” involved in my coworking business – and here’s why.

Investors are essentially business partners that don’t work on the business every day.

And I also have a philosophy around business partnerships: they’re relationships, and not casual ones. I think a lot of people mistake “business partner” as a kind of special coworker when in fact partnering in business is a lot more like getting married than being coworkers.

And honestly, business partnerships are often more difficult to undo than a marriage. And in that vein, bringing on an investor is an awful lot like marrying for money. It happens, but it usually doesn’t end well.

Yes, there are great investors out there – “some of my best friends are investors” – who bring a lot more value than money. But even the best investors are someone else to answer to, and to explain yourself to.

And I hate nothing more than giving up control over my decisions. Related: this is why I’m a great consultant and a terrible employee. But I digress. 

The only people I want to answer to are the people I create value for – in the case of Indy Hall, our community and our team – and to be able to make decisions that I believe are in the best long term interest of how we serve the community.

With an investor, things are peachy if my decisions create value for our members and our investors. But if I’m in a situation where I have to decide between creating value for our members OR our investors…you had better believe I’m going to side with our members and that is going to make for a very uncomfortable conversation on the investor side.

So I place a very high value on control over how I make decisions, especially after seeing how often people find themselves torn between the interest of their investors and the interest of their community. I actively avoid anything that clouds my long-term decision making abilities.

Plus – if you ever do want that you want to grow to a scale where you want to have investors involved – leverage is magic fairy dust for business conversations. You’d better believe that it’s a lot easier to find investors who want to talk to you (and give you good terms) when you already have a thriving business. It’s way easier to strike a favorable deal when you don’t show up to the table hungry for a check.

So, if not investors or banks, then what funding options do you have?

Here are four options – things Indy Hall has specifically done to raise money we needed – and that anyone can do without needing a gatekeeper to say yes:

1 – Membership drives.

Assuming you’ve been doing the all important early steps of community building, you have people who want this to happen and are willing to put their time and money in to see it become a reality.

(What’s that, you don’t have a community yet? You’ve got work to do, friend.)

Now’s the time to get those people signed up for memberships.

One of the first things we did was turn the act of “signing up early” into an event.

We knew that we had people ready to go, and we’d done the work to negotiate the lease. So we went to the community and said:

“Meet us at this restaurant, at this time, and bring your checkbooks.

If you can pay for your first month, that’s great. If you can pay for three months, that’s even better. Can you afford 6 months? AMAZING.

If people show us that are ready to sign memberships, we’ll sign the lease!”

That wasn’t a bluff, by the way. If we didn’t have enough people sign up, I would’ve called off the lease. I didn’t need a lease to accomplish my goals – I needed committed community members.

We made it an event. We promoted it as a celebration of a milestone. We made it a thing to participate in. Make the people who sign up feel special.

Bonus: taking checks in person helps you avoid payment fees (which add up!) but also the collective energy of people signing up can be contagious.

We ended the night with ~22 founding members. Most of them didn’t need an office, but they all wanted to know that our community had a home.

2 – “IRL” crowdfunding.

The biggest mistake I see people make with crowdfunding is getting caught up in the “crowd” and forgetting what each individual is actually contributing towards, and why.

SO while tools like Indiegogo, etc make it easier for a wider audience to discover and support a project, most successful coworking spaces are hyperlocal efforts for a specific community.

What people don’t realize or expect is that a typical crowdfunding campaign (which requires a TON of work) is going to spread your limited resources thinner by promoting it to “everyone” instead of focusing on connecting with people who already have a reason to care.

A better way to crowdfund your costs.

One of the most important lessons I’ve learned from all of the funding work I’ve done is that the more specific of a “thing” you can offer people to contribute towards helping, the better.

For example….imagine you’re looking at a $50,000 shortfall for opening your coworking space. Break that $50,000 into the actual list of things the money is going towards…and then look for ways to connect the individual needs with people who might want to support it.

Within any group, different people will care more about different things, and people want to support the things they’ll benefit most from. Lean into this! For example:

One part of “we are looking to raise $50,000” can be turned into…“We need $5k to get nicer chairs.”

Now you can start looking for an “official chair sponsor” – maybe a local business who you can offer member benefits to. Or, even better, imagine asking for 50 people to each “help us buy one chair and we’ll dedicate it to you” and then offering it to members, supporters, and other local businesses.

Smaller contributions are more accessible, meaning more people can contribute in a meaningful way, and know exactly what their contributions are going towards.

Bonus: when you break things down this way you can also find creative ways to reduce costs…e.g. maybe it’s a local furniture supplier who can reduce your costs, while still turning to the crowd for financial support and making their every dollar go even further.

3 – Member loans.

The first time we expanded from our original location, we needed a similar ~$30,000.

At a community town hall, we shared exactly what we needed it for, and our current potential options for closing that shortfall. After the meeting, one member approached helping us. Their business had been doing very well (largely in part because being a member) and they saw this as a way to give back. In fact, they really wanted to buy in as an investor.

Even though I had a good relationship with this person, I had to ask if they’d want to be a partner even if the money wasn’t involved. If it wasn’t a hell yes from all sides, this wasn’t the right move.

So I said “what about a loan?” and after thinking it over he said yes.

We put together terms where we had 12 months before we had to start paying back the loan. He gave me a rate that was better than I could get with a bank, and I had the flexibility down the road if needed.

The only challenge we ran into with this first deal was when we’d make a decision that he wasn’t fully supportive of, or when he wanted to do something and we didn’t think it was the right move. It took a lot to keep that relationship from affecting my decisions.

To be crystal clear – I’m incredibly grateful for the support. But I’d be bullshitting if I said this loan didn’t stress the friendship and the professional relationship.

So the next time we needed an influx of cash, we made some adjustments. This time we went to the community and said “before we go to other sources we’re wondering if anybody would be willing/able to offer us a small loan? We’re looking for a few people who can loan us $5k-10k each.”

This approach meant that no single person could hold the loan over our heads, and in a worst case scenario we could accelerate paying that person back if they did (removing tension, frustration, or cloudy judgement).

Another side effect of these smaller loans was that we were able to turn these into zero interest loans. They had the same “1 year before payback begins” term – something that really makes a difference with slow-but-steady growth businesses like coworking spaces.

But we also talked one-on-one with each member about the actual interest they were going to earn at market rate on such a relatively small loan. We said “here’s the dollar amount you’ll earn in interest,  but maybe there is something else that’s similarly or more valuable to you than the interest?” and in every instance we were able to offer something with nearly no cost (membership credits, consulting/support, public gratitude, etc) instead incurring the cost of the interest.

Like the crowd-funding tips from above, the key here is really understanding what people value the most and being willing to offer that instead of the most obvious option.

4 – Don’t buy everything at once.

This one is the most often overlooked.

If you’re someone who spends a lot of time looking at what other coworking spaces do, building pinterest boards for your dream coworking space, it’s easy to fall into the misconception that you have to have it all on the day your doors open.

YOU DON’T NEED TO BUY EVERYTHING AT ONCE.

When we opened we didn’t have…

  • a coffee machine
  • a couch
  • whiteboards
  • a printer
  • a projector and screen
  • dishes or mugs

We didn’t have chairs for every desk. We didn’t even have the number of desks that our space could hold….we just had enough for the people who were there, and a few more to grow into!

Bonus: a space that isn’t fully built out may look unfinished, but a bunch of empty desks looks sad. 

Some of your best members are the ones who are going to be drawn to a work in progress, and by “starting” unfinished you actually create opportunities for people to feel more connected by helping make improvements and upgrades.

In fact, since we’ve never focused on “having stuff” we also made it clear that we would buy tools and make upgrades based on what we learned was a) most important and valuable to the most people, and b) we’d do it as soon as we could afford it.

Want Indy Hall to have something faster? Help us recruit more members! Help us find or negotiate a deal!

And if you think “yeah Alex that worked in 2006 when you didn’t have any competition…” guess what we’ve done every time we’ve moved, or expanded? the exact same thing.

Take a good hard look at the things you think you need to raise money to have, and ask yourself what you REALLY need.

Desks. Chairs. Power. Internet. And people. That’s all you need for coworking.

And believe me, you’re going to need to learn how to prioritize eventually otherwise you’re going to die the death that comes from trying to “do and be everything for everyone.”

Learn how to prioritize early (and getting your members involved in that prioritization). It’ll save your ass now, and in the future.

INVESTORS ARE YOUR LAST RESORT.

The fact is that when you don’t have money, it feels like your options are limited.

But they’re only limited to your understanding of who you serve.

Do you want to serve your community, or an investor?

Personally, I’d rather not even open a coworking space to begin with than give up control over how I serve my community.

That control is one of the biggest things that’s allowed us to thrive for over a decade, and I wouldn’t trade it for anything.

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Alex Hillman I am always thinking about the intersection of people, relationships, trust and business. I founded Indy Hall in 2006, making us one of oldest fully independent coworking communities in the world. This site is packed with the lessons and examples I’ve learned along the way. You can find me on Twitter, too! 🐦 Say hi.