Would you like to be the next Instagram? Do you have an idea but lack the resources to fund a startup? Join the club. Many industrious minds ponder a new business beginning; but, the alternative to success is not so appealing. To date, a large number of startups fail within the first few years. Psychological failure won’t break bones; yet, digging a financial hole can break an entrepreneur’s bank.
The majority of startups cannot financially fend off the trials of a new business alone. Startups need funding. Traditionally, there has been a number of avenues to explore, consisting of bank loans and investors. Angel investors vary but mostly shell out the cash and leave the business operations to the entrepreneur. Venture capitalists are another option, yet many want to ‘get involved’ with the business. This could be a positive, but mostly ends in sour relations.
Modern-day entrepreneurs have a new option – Web sites, which help industrious minds field funding. The site, Kickstarter, has recently found its way into the news and in the conversations of many business-minded hopefuls. The business model is not confusing; people can gain financial support through the site’s browsers for a number of business ideas, including restaurants, independent films, products, and more. Establishing a campaign is free. However, successful endeavors are charged 5% of final amount. Additionally, Amazon (the payment processor) takes 3 to 5%.
When Eric Migicovsky wanted to engineer a line of wristwatches that can stream info from iPads, he initially took the traditional route and got denied. He then decided to offer his idea on the Kickstarter site. In less than two hours, Migicovsky and pals ‘hit’ their mark of $100,000. The crew celebrated and slept soundly, only to wake up to realize the funding process had risen to close to $1 million overnight!
That’s quite a bit more support than assumed. Actually, the support is not entirely finished; the window of support is open for two more weeks off of the Kickstarter site. As of late last week, the startup hopefuls have received close to $7 million from over 50,000 supporters.
This business model and startup process is very interesting. The Kickstarter site was launched three years ago. At first, it was a way for quirky ideas to get additional exposure and funds. But business ideas of all varieties soon took shape and garnered support from the site’s browsers. Kickstarter introduces a new ‘stop’ in the entrepreneurial process.
[Kickstarter offers budding entrepreneurs a way to float ideas and see if there's a market for them before they trade ownership of their company for money from venture capitalists.]
“You’re activating a user base that you know will be interested in your project, which, historically, has always been the biggest trouble for crowdfunding sites, getting traction and critical mass,” offers a professor at Harvard’s Wharton School of Business.