venture capital

VCs Still Sourced for Small Business Startups

There was talk that the JOBS Act would move small business startups away from venture capitalists and toward crowdsourcing options. It appears it’s not an either/or situation but both/and.

Funding Stats Regarding Small Business Startups

From a survey done by national law firm Dorsey & Whitney (originally done in 2010 and recently updated), we learn that:

  • 36% of small business startups in major metropolitan areas did a round of funding (29% prior in 2010)
  • 30% of CEOs expect to raise between $1M to $5M (23% prior)
  • 15% used business incubators (9% prior)
  • CEOs strongly preferred to seek funding from established relationships (i.e. not crowdsourcing)

Another Crowdsourced Option For Small Business Startups

While I mentioned crowdsourced consulting in an earlier post, it seems we have another similar company.

GenCrowd is also provides crowdsourced outsourcing for small business startups. It’s unclear from their website whether they’re familiar with their competitors or what their USP might be over them.

They have a similar story from the previously mentioned AskYourUsers.com.

“The volume of work that startups have to do, atleast initially – from idea brainstorming and validation, brand naming, tagline and slogan generation, logo design, web design and development, content and copywriting, all the way down to website and usability testing, SEO and marketing, analytics research, customer service, and a whole bunch of other issues – can take a real toll on people and businesses alike,” said Barun Rath, founder of GenCrowd.

“Going through the steps, GenCrowd was conceptualized from these issues that we personally faced when starting a business – we were looking for resources to provide us with different ideas and perspectives on different aspects regarding the business we were working on at the time. And so, the idea behind GenCrowd was formed – an online marketplace allowing people to crowdsource ideas, content, and feedback for their business needs.”

GenCrowd seems different in that it allows “blind” listings which means you can solicit feedback without any of the experts being able to see each others’ solutions. Of course it’s hard to beat AYU’s ties with LinkedIn – whatever that benefit might be.

Sources:

Startup CEOs Crave Venture Capital, Not Crowdsourcing

GenCrowd Leverages “The Wisdom of Crowds” to Help People Get Ideas, Content, and Feedback for Their Business Needs

Crowdsourced Consulting Small Business Ideas

Clive Thompson: Why Veteran Visionaries Will Save the World

Comments:

It seems to go without saying that we prefer working with people we know when that’s an option. But to extrapolate that to the conclusion that crowdsourcing isn’t gaining traction does small business startups a disservice. It’s zero sum thinking.

Before, venture capitalists were the main game in town. You may have got funding based on your relationships with them. Of course you had to have a solid idea too. But the relationship needed to be there.

With crowdsourcing, a whole new source of funding is opening up to the market. People without prior VC relationships will now have options where they can prove their idea and expertise.

Small Business Startups Demographics

Of course there’s the debate about preferred startup CEO ages. If anyone does a demographic study on that, I’d like to know. One I saw said the average age of startup CEOs from 1995-2005 was 39 but that older professionals start different kinds of companies than younger ones.

Clearly the older ones are going to be the ones more likely to seek funding and in all likelihood, the younger ones be more inclined to pursue crowdsourcing for small business startups.

Starting as an Entrepreneur

Starting as an Entrepreneur

There were a couple of articles today on starting as an entrepreneur. One was geared toward showing investors the entrepreneur is committed. The other was on ways NOT to start as an entrepreneur.

Both are useful as self examination tools even if you’re not currently starting a business. If you have an existing business, you can consider whether you still have what it takes to make it as an entrepreneur.

Showing Commitment as an Entrepreneur

Since investors at the beginning of a venture are betting on the small business idea rather than an established system, they want to know the idea is fully supported by the person who came up with it.

These are some ways investors judge someone to be fully committed to his idea. Even if you’re not looking for venture capital, this is a good way to examine yourself to see if you’re giving it enough to really get things going and grow your small business.

  • All or nothing – not halfway or as one of many efforts
  • Sacrifices – going with less especially to get the ball rolling
  • Hidden motivations – they want to see you have other reasons to make it work such as family obligations or wanting to make your first big mark on the world
  • Skin in the game – you have something vested in a good outcome
  • Characteristics – you can function as Gerber’s 3 types – technician, manager and entrepreneur
  • Patience – you’re willing to reinvest and work toward long term growth
  • Equity hoarders – you’re willing to save money to expand the business rather than put it all back out to investors
  • Determination – see quote below:
One has to admire entrepreneurs who are willing to have 10 or 20 rejections for every lead they receive. Nothing creates more entrepreneurial believability than a passionate belief in an opportunity. That does not necessarily mean the venture is a good investment, but I would much rather back entrepreneurs who are willing to spend years on an opportunity, and show genuine resilience, rather than those who give up after a few setbacks. The ability to recover from failure, in a country that, sadly, has little tolerance for honest entrepreneurial failure, is especially impressive.

How NOT to Start as an Entrepreneur

Another article goes into the wrong ways to do it:

  • Don’t start a business in a field you’re unfamiliar with
  • Don’t try to start it entirely on your own (find professionals, partners and mentors)
  • Not adapting to the changing market
  • Being afraid to make mistakes (that’s one of the best ways to learn)
  • Being risk adverse (you’re probably not if you’re starting your own business)
  • Don’t give up if you run short on cash

Sources:

What makes a real entrepreneur believable?

6 Ways NOT to Launch Your Small Business

Comments:

While it’s entirely possible to start a business without going all in, putting it all on the line is what people want to see if they’re going to give you money to do it. They want the best opportunity for success.

In truth though, many small businesses are started by individuals with their own money part-time. That’s part of what makes business great – there are lots of ways to get it right.

What you can’t do is start without a clear idea of how you’ll connect with and provide value to your customers. Without a way to provide value or make a sale, it doesn’t matter if you have 100 people working on it full time. But then that’s probably the first rule of being an entrepreneur and you probably already know that.