Let the Good Times Roll: Life as Entrepreneurs Will Become Easier
Since the dawn of the VC age in the late 60’s, unless you were born into the right family, there has been a virtual lock on the way entrepreneurs could access capital– through the institution invented here in America called Venture Capital. While the institution is still riding strong and always will, disruptive changes are afoot.
In 2012 new examples of this disruption are being announced and/or written about almost every day. As of Sunday, crowdfunded startup Pebble, a hot new mobile-connected wristwatch, has secured commitments in excess of $7million when he would have been happy to snag $100K just a few weeks earlier. The story, from NYTimes published a report on the rise of crowdfunding, goes like this:
When Eric Migicovsky, an engineer, wanted to develop a line of wristwatches that could display information from an iPhone — like caller ID and text messages — he went the traditional route of asking venture capitalists to finance his company. But he couldn’t even get a foot in the door, let alone secure any money for what he called the Pebble watch.
So he turned to Kickstarter, a site where ordinary people back creative projects. Backers could pledge $99 and were promised a Pebble watch in return.
Less than two hours after the project went up on the site, Mr. Migicovsky and his partners hit their goal of $100,000.
“By that night, we were at $600,000,” said Mr. Migicovsky, who is 25 and a recent engineering graduate of the University of Waterloo. “We went out for a beer to celebrate, went home and slept, and when we woke up, we were at a million dollars.”
As of Friday afternoon, nearly 50,000 people had pledged close to $7 million — and there is still two weeks left before the fund-raising window closes. (As of Sunday afternoon, the total had passed $7 million.)
Pebble is the latest — and by far the largest — example of how Kickstarter, a scrappy start-up sprouted in the New York living room of its founders three years ago, is transforming the way people build businesses.
We have been sharing our excitement about Crowdfunding in recent weeks, so we thought we’s pass this beauty along, “The Seven Forces Disrupting Venture Capital” that provides 7 solid reasons why life is getting easier for entrepreneurs. We excerpt them here:
1. It’s cheap to build, host, test, and optimize software. Amazon Web Services, for instance, reduce operational costs for young companies, directly impacting a startups’ burn rate.
2. The rise of Angel investors. Once a products gets to some proof of concept, an entrepreneur can raise seed funding from an incredibly wide range of sources.
3. Angelist defines a new Infomediary Market. S imply one of the most disruptive forces to the venture industry, the folks behind AngelList have created extremely useful social software that pairs investors with investment opportunities.
4. Crowdfunding Bursts on the scene. For some particular startups that aren’t able to secure seed funds, either from angels, super angels, angel-focused software, or venture capitalists that make seed investments, they can leverage crowdfunding platforms like Kickstarter to tap into an even wider pool of available funds.
5. Incubators come of age. While there seems to be an incubator popping up weekly nowadays, the system, network, and brand built by the partners at Y Combinator has, in a relatively short period of time, captured significant power in the early-stage ecosystem by attracting, vetting, and training technical entrepreneurs on the ins and outs of how to start technology companies.
6. New Breed of VCs emerge. The money given to these YC companies isn’t just normal money — it’s in part from a new style of venture capital pioneered by firms like Andreessen Horowitz (A16Z) and DST. While DST has made big bets and partnered with YC, A16Z has also raised large funds with a relatively small partnership, choosing instead to challenge the traditional venture capital personnel structure by operationalizing services across functional areas such as business development, recruiting, public relations, and sales.
7. Secondary markets mature. Now that early-stage shareholders (investors, founders, employees) of certain companies can sell their shares on these secondary markets, such as SecondMarket or SharesPost, they are able to access liquidity much earlier in the past.
Entrepreneurs live in fantastic times. While the road to success in pursuit of an entrepreneurial vision is never easy or guaranteed, there has never been as strong a set of infrastructural tailwinds as entrepreneurs enjoy today. Economies and labor markets will ebb and flow. But the basic building blocks for pursuing an idea, access to capital and technology resources (which even low-tech start-ups require), have never been more attainable. Whether crowdfunding will backfire due to fraud or flooding too much capitol at too many companies pursuing the same ideas, remains to be seen. But for the moment, the ground is fertile for planting!
Are you tempted by a big idea? What are you waiting for?
Update: 5/1- Just came across this post expressing potential pitfalls associated with #5. Good read.