When trying to get funding for small businesses, it helps if you have a product that you’ve demonstrated the ability to sell successfully. But as some tech startups have shown recently, that’s no longer an actual requirement.
Buzzy tech companies like Magic Leap, a virtual reality startup, have been able to raise hundreds of millions of dollars from major investment firms before ever releasing a product, or even much information, to the public.
Brian Solomon of Forbes writes:
“The company’s website says little other than their slogan: “it’s time to bring magic back into the world.” But behind closed-doors, Magic Leap’s so-called “Digital Lightfield” must have impressed Larry Page and company at Google. The search giant led a $542 million Series B round in Magic Leap last November, with participation from Qualcomm as well as KKR, Vulcan Capital, Kleiner Perkins Caufield & Byers, Andreessen Horowitz, and Obvious Ventures. The round brings Magic Leap’s total funding to date up to $592 million.”
Solomon listed a few other tech startups in his post that have also been able to raise large amounts of pre-launch funding, including would-be Amazon competitor Jet.com, Bitcoin startup 21 Inc, health insurance startup Oscar, and drone software provider Airware.
But not all of these ventures have actually been able to find success thanks to their early funding. AdKeeper was a service that let people save the ads they saw online in case they included deals or special offers. It raised $43 million before officially launching in January 2011. But as it turns out, people aren’t especially interested in saving online ads.
Color, a photo-sharing app, is another early-funded startup that didn’t make it. The company raised $41 million before launching in March 2011. But it never took off like its competitor Instagram.
Small Business Deals
The potential for raising a large amount of money might be an exciting one for emerging tech companies. And for those that require a large amount of research and development, the ability to obtain funding prior to launching a product could actually be a necessity.
But the ability to raise funding doesn’t necessarily translate to the ability to build a long-lasting and successful business. You still need to work on creating a product that people want and are willing to pay for over the long run.
Image: Jet.com
I think all of these are crazy. Who puts that kind of money behind a company/person/team/idea without seeing some results first?
I think it is just about belief. I know it’s crazy but it is happening. So if you are convincing enough to get people to pay for an idea, you can actually make some money out of it.
I agree with Aira. It certainly would be a bigger risk, and not something I’d choose to invest in. But if there are people out there who believe in an idea that much, then good for those companies!
Back in the day, it was Boom.com. Do you remember this crash-and-burn company?
I vaguely remember the name. Clearly, it wasn’t a big hit though!