The traditional model of founding a technology start-up required huge capital investment in order to purchase premises, equipment and eggheads to work it all. Increasingly however such huge capital outlay is no longer necessary. With IT and technology expertise becoming more ubiquitous in our society and many premises laying empty with desperate land lords, the tide may be turning.
With the diversification of the available sources of capital it is just possible that we might be looking at an endangered species in the form of graying businessmen who perch lavishly on a personal fortune and threaten to transform a companies prospects with one foul swoop. Succesful venture capital investments dropped around 40% in the two year period up to June 2010 (http://tinyurl.com/67ul5q9). Now on the face of it this might spook some Entrepreneurs who have the idea of the century and need to get it off the ground. But my suggestion is that far from being restricted by a lack of Venture Capital, you are in fact being liberated.
Always remember: "If a VC fund can’t plan on getting its money out of a business, the money never goes in" (http://tinyurl.com/6xeo2qw). Now in many ways this makes perfect sense. How many of us have seen crackpot ideas on dragons den (cucumber condoms being my personal favourite http://tinyurl.com/ycm42yd) which benefit from having some spots knocked off them by a discerning business expert who is unlikely to part with their own money for a business idea which could never feasibly work. But this is an extreme example. If you have founded a concept, justified it with market research, and already started selling it, then maybe you should bypass the VC all together and save yourself the trouble.
A successful Entrepreneur whom I have a lot of time for told me recently that "If you can sell something to your friend, and then to your friend's friends without too much effort, then you have a business". He was saying that feasibly a good business idea will fund itself if you nurture it right (check out http://www.yoodoo.biz/). Another emerging alternative source of Captial is the "crowdsourcing" model. Websites such as GrowVC and IndieGoGo provide a means for an Entrepreneur to float their idea and gain lots of 'Micro investments' in order to reach their required capital level (more here: http://tinyurl.com/6zauhxn). You will all have seen a canny Entrepreneur try to secure two dragons for the price of one? Why not gain the backing and experience of 1000 investors instead?
Venture Capitalists are no doubt a good way to back your business, but only if they are right for the business and you are right for them. What we need to move away from is an individual's word being law. Most respectable VC's will have themselves been in the penny-less start-up position at some point in their life, and chances are they didn't use Venture Capital to climb the first rung of the ladder or wait for the stamp of approval from someone whom they had just met. No single person can lean back in their chair and hold the market in their hand, professing that their thumbs up or thumbs down will determine the ultimate fate of a fledgling business concept, and if that is how they base their investment then I would 'venture' the well know adage:
"A fool and his money are soon parted" - And I think it might just come true.
No comments:
Post a Comment