You’ve got an idea that you’ve turned into a product. Your customers are happy and you’re on the brink of adding more. But your startup hit a major stumbling block. You need capital to expand so you don’t fail with your new customers. If you’re like most entrepreneurs, you make it a point to attend events and meet with angels and venture capitalists. And you start hearing “no.”
A few of the typical stumbling blocks of why angels and VC’s say no
- There is no clear plan to attract more customers
- They can’t see how your company will become of the Fortune 500
- They don’t know you or your track record
- Competition in that particular market is too high
- There isn’t a clearly defined way that the startup is different from its competition
There are more reasons and sometimes it is a case of the entrepreneur just not telling the story in a compelling way. I have even heard stories of how investors couldn’t understand the concept of the company and/or product. But, it remains that there is a need for more capital if the startup is going to grow.
If you are familiar with the “friends and family” form of funding a startup, then crowdfunding can be seen as an extension of that idea. Basically, crowdfunding is “the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations.” It can be a useful tool for early stage and small business owners to fund a company or just a particular project. Often there is some sort of free offer or giveaway for investors. And although it has become quite popular in the US, a recent survey from Massolution shows how much it has grown worldwide over the last year.
One potential area that crowdfunding could disrupt the traditional model is that some entrepreneurs want to raise money without giving up equity. Most investors seek a way to minimize risk by owning a percentage of the venture. In a VentureBeat post, it was noted that there are other ways that this could be a disruptive force. People who would normally not even get a first look from a VC (i.e. music bands raising money to record, social organizations, small to mid-sized companies, etc) can raise capital for their organizations or projects. It also uses a current social and professional network that may or may not include traditional investors to connect to interested people. This means the reasons why people invest change also. There is more emphasis on the personal connection, support for the mythology of do-it-yourself and community. Another way that crowdfunding can disrupt investing is that new startups can establish themselves because they have more than the bootstrapped funds. Then there is the startups in countries that either have difficulty accessing venture capitalists or are looking for microfinancing.
So, what do you think is coming next with crowdfunding? Will it change how venture capitalists invest? Join us Friday, July 12, 2013 at 5pm GMT/12pm ET/9am PT for the Twitter chat, #KaizenBiz as we discuss crowdfunding
What makes crowdfunding so appealing to startups and small businesses?
How are crowdfunding investors different from more traditional investors?
What are the advantages of using crowdfunding as a way to raise money for your startup or small business?
What are the disadvantages of using crowdfunding as a way to raise money for your startup or small business?
What effect, if any, is crowdfunding having on venture capitalists, angels and other traditional investors?
What trends do you see emerging with crowdfunding?