Some ideas really do seem to change the world almost overnight. Whether it’s sliced bread, the telegram, the internet or pizza delivered fresh to your doorstep, all of these innovations that we now take for granted were once little more than vague, unformed, “what ifs’’ in someone’s imagination. To this day, popular culture and even the education system continues to peddle the myth that all it takes is one great idea to change everything and if we can just dream it, then we can do it.
But the truth is somewhat more complicated. Because the reality is, that ideas alone don’t pay the bills. Rather each and every visionary, inventor or entrepreneur who ever changed history was only able to do it because somebody somewhere bankrolled their idea. Even some of history’s genius innovators like Nikolai Tesla had to curtail their life’s work for lack of commercial backing.
In today’s world ideas seem to come thick and fast. There are businesses and Startups popping up seemingly everywhere from fin-tech, to e-commerce to personalised fitness programmes. Grand launches are now so commonplace that you would therefore be forgiven for thinking that there is a never ending tap of startup financing for brand new Startups and big business reboots alike.
The Unicorn In The Room
And you know, there is actually some truth in this. Look at the Unicorn Companies like Space-X which recently very quickly and easily managed to find $850 million in fund-raising. Of course, ‘SpaceX’ does have the rather unique advantage of being headed by one of the world’s richest men who had previously already invented Paypal but this is not always the case. Even unknown, untested brand new Startups like the Sustainable Real-Estate AI company ‘Spacemaker’ managed to secure $25 million in Private Funding.
Many Startups are currently able to land investment that is 50 times their annual revenue as venture capital investors seemingly queue up to compete with one another.
But not everybody appears to have been invited to gorge on the buffet of startup investing. The sad reality is that companies not based in Silicon Valley are already at a disadvantage partially due to a simple lack of networking opportunities. Furthermore, Startups coming from the developing world are at an even bigger disadvantage owing to weaker currencies and a (perhaps unfair) lack of confidence in their countries political and economic stability.
Take a humble Startup like Gulu Handmade from Uganda for example. Their concept was simply to take widows of the country’s civil war and train them to make ethical, handmade, fairly traded backpacks. Despite a winning, low cost idea, they were unable to even secure a bank loan for their launch. Peculiarly, whilst venture capital funding is flowing more freely than ever, bank to business lending remains tight. Startups in particular are feeling the brunt of this return to conservative lending as the big banks prefer tried and tested, established business models over innovations and unknown quantities. There are even apocryphal stories of bank business managers asking StatUp applicants questions like “so you really think this internet thing will catch on?”!
In the end, Gulu Handmade, like countless other Startups turned to Crowdfunding to get their project moving.
What Is Crowdfunding?
Ok, if you have ever come across the concept then let’s take a look at it. Crowdfunding is simply where an innovator (be it an artist, an engineer or an entrepreneur) seeks to secure funding for their project directly from its intended users, ie, the public. The roots of crowdfunding actually stretch back hundreds of years – in the 1700’s Wolfgang Amadeus Mozart utilised the concept seeking donations from Vienna’s classical music fans to fund performances of his new works.
The advantage of Crowdfunding for a Startup is that they do not have to surrender control of their company, compromise their vision, or divide up their profits. Neither do they have to pay back hefty bank interest payments or deal with impatient portfolio managers pushin for faster returns . Instead Crowdfunded Startups typically only have to offer a very specific return to each investor such as a first run of whatever product they are producing. For investors, it’s generally a case of partaking in a low risk/low reward venture usually done out of a sense of genuine goodwill and a belief in the start up rather than a quest for enrichment.
The biggest challenge Crowdfunders face however is getting their campaign out there in front of people who may be interested. The internet does give Startups the potential to reach billions of people across the globe, and market data intelligence resources can also help them to find, and reach out to these people. Whilst anybody is welcome to take a DIY approach to managing a Crowdfunding campaign, many Startups find it wiser to consult the services of a Crowdfunding specialist or at the least, join an established Crowdfunding Platform.
Right now, the future seems more uncertain than ever. Gravity tells us that whatever goes up must come down so it is unclear what will become of the startup investor boom or the many Startups they have spent big on. Will the venture capital finance tap finally dry up? Who will the winners and losers be? These are questions that only time can tell.