The word being bandied around these days is crowd funding platforms (Kickstarter & IndieGogo) and is expected to ramp up the usual entrepreneur’s ability to get funding through this new opportunity. Whilst this avenue seems to be a good alternative to angel investing, it is doubtful that it will kill the need for angel groups.
Traditionally entrepreneurs who require funding tap family, friends, high net worth individuals to fulfil their needs before they go on to bigger sources of funding. According to Wikipedia, angel investors contribute over $20 billion annually to entrepreneurs in the U.S., while the latest figures on crowd funding show about $9.5 billion collected in 2014. Both figures are impressive. But to think that crowd funding will take the place of angel funding is something that David S Rose, one of the most active investors in New York thinks unlikely.
His advice to entrepreneurs and investors is sound and he says and I quote ‘skip the hype and recognize the fundamental truths of the startup industry, before joining the crowd, or joining angels’.
It is a fact that most startups fail. Statistics say that this failure rate is higher than 50%. To start with crossing the ‘valley of death’, the time when a startup is being funded usually by friends and family is a path strewn with the skeletons of ‘has-been’ startups. The reason is usually running out of money or not getting funded. Investing in startups has to be looked at like any other investment, approach with care, do your research and know that it is a low odds game.
There is no angel investor or professional venture capitalists who can be sure that a startup is going to be a success. Investing in startups is a numbers game. The ‘portfolio approach’ which counts on hitting on a couple of big winners, while the others return very little is how angel investing and venture capitalists look at this sector. Unsuccessful startups tend to fail early and big successful exits tend to take a long time to develop. This means investors need to spread their investments across a long period of time and across a large number.
Thus every serious investor reserves a certain amount of his investment capital for subsequent rounds of funding, which allows them to stay the course to success, even with dilution. Investing can be satisfying, if not always lucrative. For the rest of us, it is keeping up with technology, a give-back to entrepreneurs, and building a legacy.
As our government looks to new way to raise taxes and the compliance issues with crowdfunding in our country much in a ‘gray’ area it will be a long time before crowdfunding can be a serious alternative to angel investing.
Investors of all types who fund entrepreneurs, starting with friends and family, have always been all about creating win-win situations. The investor wins only when the startup wins, and today's angels can only cover a small percent of funding requests. We have a long way to go, in this new era of the entrepreneur, before angel investors aren't needed.
Reference: Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups
With this opening statement Dr. Shailesh Kasande commenced the first session of the Lecture Series: ’Ideation Management’ organised by Investronaut. Investronaut is an incubator that helps startup and early growth businesses become viable in the market place.
A great idea does not necessarily lead to a great value proposition. A value proposition by definition is a promise of value embedded in satisfying customer needs and in your company’s ability to deliver it to the market. We can all have ‘good’ ideas, however, the value proposition needs information and insight from external sources. You cannot discover the value of an idea sitting in a room no matter how smart you are and no matter how experienced you or your teams might be. Value propositions need connection with customers coupled with your company’s delivery mechanisms. Information alone does not create a value proposition.
Taking this a step further, the follow on from ideation through thorough insights, external and internal, clarity on the value proposition and right funding along with a motivated team still is incomplete unless you have the right mentor to guide your through the minefield of your start up journey.
The question one needs to answer is can one traverse this minefield alone?
You need to constantly collect and synthesize information; think tactically and long-term simultaneously. You have so many hats to wear to make your business happen. It can be hard to keep the bigger picture in mind, it can be hard to think big and just know where to go next.
This can be a very lonely journey, and having someone that fully understands what you are going through, is crucial. As an entrepreneur, do you have blind spots that you cannot see?
Will you find yourself in situations where you “don’t know what you don’t know” but you have to stay in motion and make decisions regardless.
Well the long and the short of it is that you can’t expect to assemble the plane alone; that’s where good mentors can help. The correct mentor will:
Help to shape your mindset.
Challenge your ideas and plans
Help you avoid reinventing the wheel
Help you derive insights from varied experiences – learn from other’s failures
Push you to dream bigger
Tell you stories and give encouragement that what you are doing is right & this is very comforting, less lonely
Manage expectations and help you stay focused on your core business
Help you not be afraid of reaching beyond yourself.
Mentor will engage with you at a deeper level – integrate your life goals with the startup
It is no secret - there would be no Sachin Tendulkar if there was no Ramakant Achrekar!!