After listening to Neil's interesting perspective in class on Sailthru's fundraising and expansion chapters, I came across an article in the Wall Street Journal describing recent tech start-up funding through crowdsourcing venues like Kickstarter. Particularly focused upon is Pebble, a small "smart watch" producer that set out with a goal of raising $100,000 and ended up raising $10m. Rather than buying shares of equity, funders essentially pre-paid for Pebble's smart watch, and Pebble is now fighting to actually produce its product in the high volumes to meet customer demands.
Because I am fairly risk averse, I would be tempted to go the 'bootstrapping' route in starting my own company - thinking to minimize the outlay risk while maintaining complete ownership of the company. That said, I think bootstrapping would probably be a mistake for any business models that aren't quickly monetizeable, as the business would have a hard time getting enough momentum to survive. Inc.com offers some interesting perspective on self-funding (http://www.inc.com/magazine/20021015/24778.html); apparently 41% of Inc500 business start-ups launched with less than $10,000 (and more than a third got a bootstrapped start with less than $1,000).
Now that the JOBS act has made 'crowdsourcing' easier, do you think
more technology start-ups will turn in that direction rather than
venture capital? Is the nickle-and-dime small investor chip-in worth the
broad, grass-roots support? Or is it far easier to have fewer voices at
the table by having only a handful of Angel investors/VCs supporting
you? (Of course, with the possible downside of 'active' angel investors
who show up on your doorstep nearly daily).
http://online.wsj.com/article/SB10001424052702304441404577478732360629906.html?mod=WSJ_Tech_LEFTTopNews
http://www.kickstarter.com/projects/597507018/pebble-e-paper-watch-for-iphone-and-android/posts/230097
1 comment:
Tech start-ups need capital to fund their inventions and later their products. Initially, one might believe that this indicates that the venture capital approach is safer and more reliable. However, in this digital age of quick and prolific communication, people use programs like Kickstarter with ease and frequency – indicating to me that the money should roll in just as quickly (assuming you’ve got a great idea) as it would with venture capital money. The speed at which word of the tech start-up will spread may be comparable if not faster than the speed at which venture capitalists discover new investments. The only downside, that I am sure is the case, is the stark discrepancy in quantity of money per investor/purchaser. Sure, the Kickstarter purchaser donates less money, per person, but if the word of mouth is strong enough, the tech company might just see the same outcome in pre-sales investment. One other thing to consider is the fact that Kickstarter money never be as great as vc investment because the money in the former is donated, not invested. Therefore, perhaps a joint venture is best: Begin with Kickstarter to gage the level of interest, and then seek out additional venture capital money.
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