Are VCs outdated? And is a bank loan really necessary for many businesses to start?
Given the rise of Kickstarter, Indiegogo, and other online funding platforms, one begins to wonder what shifts await traditional sources of business financing. Kevin Lawton and Dan Morom, authors of the book, The Crowdfunding Revolution: How To Raise Venture Capital Using Social Media, have a few ideas.
Lawton has founded multiple startups, while Morom is a finance PhD candidate at the Hebrew University of Jerusalem. I sought a review copy through NetGalley; It’s a second edition published through McGraw Hill, where the first was self published.
The book’s publication history is not lost irony on the subject matter. Significant computing capability, widespread internet access, and digital media has rearranged value for publishers and media producers. A similar impact is happening in finance. Lawton and Morom believe we have reached a critical shift in how funding should work. They don’t believe VCs are entirely passé, but do note that:
“If a system is too structured, its very structure presents it from being very innovative. If a system is too chaotic, its chaos prevents its from being productive. The sweet spot of innovation is right at the threshold, at that’s at the edge of chaos.”
That perspective means that traditional business resources such as a board of directors should be rethought to be effective for a more varied and global entrepreneurial audience.
The book is peppered with a few terrific factoids – didn’t know Vermont had revised its legislation to create a start up environment competitive with Delaware and Nevada. It also explains technological trends that can make or break platforms, such as APIs:
“Exposing APIs and data is imperative. Even from only a competitive standpoint, it’ll be hard to compete for attention.”
Rightly noting that APIs are making applications go around, the authors highlight benefits that small business owners will appreciate. Readers will not learn a step by step process. Instead, they will learn what aspects of crowdsourcing platforms should be present when deciding where to invest participation. Creative trends are also highlighted, such as a finder economy that connects entrepreneurial efforts with funding sources.
“The rise of finders has become its own revolution, and it has created a new finders’ economy.”
A wider discussion on the impact of such an economy is probably left best for a webinar – but the topics’ inclusion, along with an example in the platform FundHamony, reflects very advanced thinking compared to many social media books on the shelf (or with ebooks, on the server). The authors even note a crowdfunding due diligence company. Touches like that show Lawton and Morom researched the right potential questions readers would wonder about.
Refreshingly The Crowdfunding Revolution pokes at venture capital thinking without relying on hackneyed commentary easily trolled and copied from any ole’ blog. Take this quote about video:
“A very common way to pitch an idea online is to make a video. Videos make it easy, on a human level, to get familiar with the people behind the idea or cause, and they are far easier to digest than reading through a Powerpoint presentation.”
When video is contrasted against powerpoints, the authors subtly position a recent successful platform, YouTube, against a typical presentation method, the roadshow.
The book is a clear compliment to Locavesting and Getting Into The Game, although readers of The Mesh may want to read this as a follow up book (The Mesh still remains one of my favorites in providing start up examples).
A good read during a company downtime or when researching a startup. The Crowdfunding Revolution offers fundraising inspiration for small business owners and aspiring entrepreneurs.
Video is very effective for us in the content marketing world. Therefore I believe it has tremendous impact on presentations and pitches.
Thanks for sharing Pierre
Great comment! another driver for video is added tagging through websites via HTML5. Content will be even more searchable on sites that use the tags in anticipation of semantic search. Plus YouTube already provides exposure as the second largest “search engine” behind Google.
Thanks for reading the post, Mike!
Totally agree on the impact of videos on raising financing. Our crowd funding site allows entrepreneurs to upload videos and we have seen much greater interest for the opportunities with videos than without.
Pierre: Is the book describing international examples on crowdfunding? Do you have more information on Mesh?
There is certainly going to be a seismic shift in fundraising for early stage companies but I suspect the change will come at the expense of angels and other early stage investors rather than classic venture capital. VCs bring much more to the table than their wallets; they bring both expertise and, often more important, critical contacts to bring the nascent company to the next level.
Crowdfunding may bring in needed cash to a company, but that will often simply be enough to bridge a gap that will still need to be filled by someone with the knowledge and network needed to advance the company from a start-up to a full fledged business.