Entrepreneur News

The credit crunch has undoubtedly put the squeeze on small businesses. Bankruptcies within this group hit 7,514 in May, up 40% from a year ago, according to Automated Access to Court Electronic Records, an Oklahoma City bankruptcy data and management company. Despite those numbers, there are plenty of entrepreneurs who refuse to throw in the towel. Instead they're coming up with creative ways to keep their companies afloat.

When Brooklyn coffee shop owner, Debi Ryan, was faced with the possibility of shutting her doors, she appealed to her neighbors, asking them to become mini venture capitalists and invest in her business. As a result, she just hosted a grand re-opening. Instead of taking a loan or seeking venture capital funding, entrepreneur Paula Conway managed to pay for the launch of her travel web site with money she made selling - of all things - cupcakes.

Taking such unconventional routes to raise cash has become a necessity for many small-business owners as traditional sources of funding (i.e., venture capital and bank loans) have dried up, says Peter S. Cohan, president of Peter S. Cohan & Associates, a management consulting and venture-capital firm in Marlborough, Mass. In the first quarter of 2009, venture-capital firms raised 40% fewer funds (a total of $4.3 billion) than a year ago, according to Arlington, Va.-based trade group National Venture Capital Association. "The businesses that are going to survive are getting creative about raising as much money as they can," says Cohan.

Here are five businesses that are doing just that:

Turning neighbors into investors
Vox Pop, a café and bookstore in Brooklyn, N.Y., now has 144 new investors - and they all live in the neighborhood.

In January, Vox Pop's CEO, Debi Ryan, received notice that the Department of Health would pull the store's license to serve food and beverages unless it paid fines tallying $33,000 - an amount that would force the shop to fold. The fines, which resulted from such infractions as baristas drinking coffee behind the counter and not having a manager on duty at certain times, originated in 2007 but soon escalated when the store failed to pay them, says Ryan, who took over the shop just two weeks before the Health Department issued its notice.

Instead of giving up, Ryan turned to the local community for help. Two town hall meetings and almost three months later, Vox Pop raised $64,000 from local investors. "It's great," says Ryan who celebrated the store's grand re-opening in May. "Now they can say 'That's my coffee shop' and mean it."

Launching a business on the side
Paula Conway only needed $3,000 to launch her Westport, Conn.-based travel information web site ConwayConfidential. While she didn't have enough cash on hand to pay for the site, she did happen to have plenty of sugar, flour and icing.

Rather than ask friends and family to hand her some