One Hack That Will Forever Alter the Way You Fund Your Business
If you don’t learn how to do this, you’re missing out on what will soon be the single greatest source of new funding–yeah, it’s that big…
I’ve always hated the notion of stepping outside of the box; as though you were stepping into some sort of void like the Terra Incognita on an antique map where the world drops off just beyond the dragons. (Note to innovators: Those dragons weren’t drawn by Magellan.)
Entrepreneurs don’t just step outside of a box; they imagine and build entirely new boxes that the world never knew it needed. And they then scale those boxes to unimaginable size.
That’s what makes great startups so disruptive; they change our behavior. Isn’t that why it’s so hard to imagine life before Google? Or why we so underestimated the impact and scale of Apple’s foray into digital music, and then into smart phones, and now into wearables, and soon into cars.
“Entrepreneurs don’t just step outside of a box; they imagine and build entirely new boxes that the world never knew it needed.”
What! Apple and Cars? You’re thinking, “You can’t be serious?” I am, and what you just experienced is a glimpse into how, once again, we limit the volume of our imagination by what can be contained in the boxes of the past. It’s exactly what most people said about Apple and the iPod.
Getting Boxed In
But building new boxes is risky business that rarely is met with open arms when it comes to funding. The reality is that the current options for funding new businesses leave a lot of innovation behind.
In 2013, for example, a total of just under 5,000 funding deals were cut in the United States. Angel investors accounted for only 884 deals, which totaled $1.1 billion in overall funding. Venture capitalists cut 3,995 deals, for a total investment of $29.4 billion. Pretty impressive, right? But it’s only scratching the surface of what could be.
“…we limit the volume of our imagination by what can be contained in the boxes of the past. “
A staggering 500,000 new businesses are started each month in the USA alone. While only 30 percent of those businesses have more than one employee and less than 20 percent will survive their first year, that still leaves just about three million new businesses each year that are bootstrapping without any outside funding. Clearly they are not all destined to become the next Google or Facebook, but if only one percent even come close, that’s still thirty thousand businesses that have a good idea and do not have access to outside capital–seven times as many as do get funding!
That’s an enormous amount of potential opportunity left on the table. Just to put it into perspective. Estimates from the National Venture Capital Association put the contribution of VC at about 10% of US GDP. While the math is fuzzy, we could claim that GDP would increase by as much as 70% if seven times as many businesses were able to get funding!
So, how is that changing? Through one of the most important ways to hack the funding model, crowdfunding; the ability to bring your idea directly to the market of potential buyers and investors while it’s still just an idea. As of March 3, 2014, more than $1 billion in startup investment had flowed from a crowd of nearly six million people to projects on the popular Kickstarter crowdfunding platform alone. (Others include Indiegogo and RockThePost.com) The total value of all crowdfunding transactions to date is well over $2 billion.
Crowdfunding is not just a bridge from idea to innovation, it’s a six lane superhighway. If you want an example just look to Oculus Rift, which started on Kickstarter, raised, $2,400,000, and was then acquired by Facebook for $2 Billion.
Crowdfunding has already exceeded angel funding and I’d go so far as to project that within twenty years the amount of money flowing through all crowdfunding platforms will eclipse that of VC funding as well.
“Crowdfunding is not just a bridge from idea to innovation, it’s a six lane superhighway.”
What this means to you is that the entire risk profile of an entrepreneurial startup is changing radically, and if you do not yet have a competency in crowdfunding you had better develop one. For the vast majority of entrepreneurs that competency will be the key to their success.
Failure is Free
Crowdfunding also changes how we look at failure. The stigma for millennials, and more so for Gen Z, is not associated with failing but with the lack of trying. The reason is simple; it costs nothing other than a bit of time to launch most new crowdfunding campaigns. So if you’re not trying it must be because you have no ideas! Yeah, I doubt that’s the case.
As you chart a course into the future few things will have a greater impact on the world than the increasing rate with which we will innovate and bring new ideas to market–making the risk of stepping outside of the box as laughable to those who navigate innovation as the dragons on those antique maps were to Magellan.
Adapted from The Gen Z Effect which looks at six forces that are shaping the future of business. Crowdfunding is part of the sixth force, Lifehacking, which enables Gen Z to circumvent entrenched systems and interests that stand in the way of innovation and progress.
This article was originally published on Inc.
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Tom Koulopoulos is the author of 10 books and founder of the Delphi Group, a 25-year-old Boston-based think tank and a past Inc. 500 company that focuses on innovation and the future of business. He tweets from @tkspeaks.