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 Entrepreneurship Insights

February 2015

Welcome to the latest bulletin offering entrepreneurial insights from the Startup Owl. Enjoy and learn. This issue is mostly about the need to be alert to the power of crowds.
USA Crowdfunding Situation Report

The crowdfunding market is growing fast and the last quarter of 2014 was not exception. Traditionally, raising equity for startups, beyond friends and family was both very expensive and only viable for raising very large sums. The concept of crowdfunding has, in principle, made the process much more accessible. 

 

However, for most startups, it has only been the reward-based model of crowdfunding that has been available. Equity-based crowdfunding was a much heralded feature of the JOBS Act passed nearly three years ago. Some refer to Peer-to-Peer (P2P) Lending as being crowdfunding, but the mechanism is different and more relationship-based.

 

Reward-based Crowdfunding

Reward-based crowdfunding platforms like Kickstarter and Indiegogo can undoubtedly raise big sums, such as Kickstarter's biggest to date: for the Coolest-a portable party cooler, with blended drinks and a music player. The campaign raised over $13 million from more than 60 thousand backers last August. In October, the Skully AR1 motorcycle helmet (with a heads-up display, rear-view mirror, and GPS navigation) raised $2.5 million on Indiegogo when they only sought $250 thousand.

 

Crowd Valley (who provide infrastructure products and services for crowdfunding) makes the point that the demand for crowdfunding technologies is still mainly based in the USA and it is above all directed at equity investment in private companies by accredited investors. Equity-based funding is by far the fastest growing sector, while though strong, the reward-based sector is static or declining relatively.

 

Equity-based Crowdfunding

Right now, however, the equity-based crowdfunding platforms are only open to high net worth individuals (accredited investors). This is because the SEC has not yet issued the rules for Title III that would allow small businesses to use an online crowdfunding portal to sell equity in their business to the general public and to raise up to $1 million in capital. The SEC it recently revealed that it plans to finalize the Title III Equity Crowdfunding rules from the JOBS Act by this October, but it appears likely that the earliest date small businesses will be able to utilize the JOBS Act provisions to raise capital will be the beginning of 2016.

 

Situation in UK

The UK is second (17%) in the world, after North America (47%), for crowdfunding, there is less restraint on equity-based crowdfunding. The Alternative Funding Network forecasted that the crowdfunding sector would deliver �850m of funding to UK SMEs in 2014-a 135% increase from the previous year. 

 

However, though equity-based crowdfunding is big in the country, the Financial Conduct Authority did issue new rules last Marc, though this year's review saw no need for change. There are 42 currently active platforms in the alternative funding space that are relevant to SMEs in the United Kingdom.

 

Individual US States Are Taking Action

The Jumpstart Our Business Startups (JOBS) Act was signed into law in April 2012. So this delay in democratizing startup capital funding has resulted in about 15 States setting up their own rules that allow startup businesses to raise money through intrastate crowdfunding investments. In Vermont, for example, the rules allow the raising of up to $500,000 in an offering to 50 or fewer share purchasers.

 

Requirements of this exemption include the seller's principal place of business and a majority of its employees must be in the State. While general solicitation is permitted, the advertising material must be submitted to the Vermont Securities Division.

 

Paradigm Shift

Indication that there is pent-up demand for 'democratized crowdfunding', or making it available to the small non-accredited investor, is evidenced by the fact that more and more people are making investments using the 'pre-existing relationship' loophole. Some local investment opportunity networks (not investment clubs) provide information so that people can make direct contact with opportunities informally on their own. The LION is an example in Washington State.

 

Crowd Valley observed that in the last quarter of 2014, many actors from the traditional finance sector (broker dealers, asset managers, investment advisors, private equity funds) have shown an interest in crowd investing and peer to peer marketplaces. This seems to confirm what they and others always believed: crowdfunding will bring about a paradigm shift, affecting not only the early stage finance world, but the entire financial industry-and of course entrepreneurs.

 

Affiliation Trumps Autocracy
Entrepreneurs and Leadership
When entrepreneurs start a new business, they need to be awake to the kind of style the company will embody. I learned this the hard way. It took till the second year of my first startup to see how critical management style was to making the company thrive. It was not a nice behavior, it was a primary task.

Entrepreneurs have a reputation for being go-getters, passionately focused on their dream and hence sometimes they might pay less attention to people around them. Ignoring the crowd around you is a big mistake, whether the individuals you, or different.

Lori Hanau, a colleague on the MBA in Managing for Sustainability program where I teach, has been someone who has taught me too, by example. Lori is herself an entrepreneur and leadership mentor, running Global Round Table Leadership. Shared Leadership is what she says is required to meet the call and needs of our times. Here is how she describes this practice that can strongly benefit entrepreneurial businesses.

Shared Leadership
"Shared Leadership is the practice of bringing out the greatest capacity in everyone by empowering each individual to be responsible for and engaged in the success of the whole. It is not positional leadership. It is a fundamental shift in how we understand and apply power and are awake to our actions and impact in any situation and in every moment.

"Cooperative business models, crowdsourcing and the democratization of information are just a few examples of a cultural shift toward collective intelligence and impact. This shift requires that we cultivate new ways of working together, rooted in our innate abilities to accomplish organizational objectives and collectively impact social change. This shift requires Shared Leadership.

Wisdom of Crowds
"When we all share responsibility for excellence and care, our capacity and creativity expand exponentially. Shared Leadership calls all stakeholders to rise in our responsibilities and actions in bringing the "wisdom of crowds" outside of the informational and theoretical right into the boardroom, classroom, workspace, community and household. By creating the conditions for the genius of our grand diversity to thrive, we develop the collective power, skills and tools to act effectively to our greatest success.

"Shared Leadership is about us becoming more awake to our ecology. Not just to the world of people - our employees, colleagues, families, and friends - but to the world itself - our places, our communities, and our planet."

Thanks for reading this issue of Entrepreneurship Insights. If you have any comments or would like help with your startup, do write to me: will@startupowl.com

Sincerely,
 
Will Keyser
a.k.a. The Startup Owl

In This Issue
 
 
 
 
 
 
 
 
 
 
Telling Startup Stories: Keep the End in Mind
by William Keyser
Kindle ebook Edition
Make your startup pitch the most persuasive by learning how to tell your best story.

Look Into the Crystal Ball
Take a look at these ten slides for some of the reasons why.

Spread Your Ideas to the Crowd
You never know who is out there in the crowd. All the marketing advice will tell you about focus and not wasting your promotional dollars. But, casting your bread upon the waters may bring unexpected results.

At $2.99 Don't Miss This!

Nina Amir's eBook, Authorpreneur: How to Build a Business Around Your Book, could equally be subtitled, "How to Build a Book Around Your Business." Entrepreneurs would do well to read her eBook, to learn of vital ways they can multiply their marketing without spending a fortune.

 

You will have to get your ideas into a good shape and articulate them well. Then a bigger challenge, but not rocket science, is to learn how to format and publish an your own book. 

 

Return on Investment

The return on investment may not come from the book itself, even though it can be a wonderful promotional tool, but from the derivative products related its subject of. She shows you how to convert a book, into workshops and classes; or to start a speaking career. Then she adds multipliers to multipliers.

 

Nina then shows you how to turn those book-based webinars into online courses. She writes from the perspective of an author, but the entrepreneur has just as much, or even more to learn from her.

 

Few entrepreneurs think about writing a book, but it is a wonderful way to promote the business and find new customers. At the same time, sitting down to write a book is immensely helpful to clarify your thinking about its subject matter.

 

Crowd Communities
We Don't Know it All
When I teach strategy to MBA students, I stress that their ideas will be as good as mine.Growing up as a manager in the golden age of quantitative corporate planning, I was led to believe that everything could be reduced to numbers.

Not so. We don't know it all, nor can we expect to know it all. As we work on business plans, we tend to think that we can define our customer segments accurately. But that's not really true, because we make many implicit assumptions about the people whom we think will buy.

Serendipity
At the outset of the business you will be surprised about some of the sales you make and how the customers found you. At the outset of my business I targeted large multinationals. My first customer was indeed one such: Mars Confectionery. But when I was a approached by a relatively small travel company, I wondered why. It turns out that the boss admired what Mars was doing, went to visit them and saw our product at work... and then: voil�!

You can be open to that kind of serendipity and in fact go looking for it. That's why social media marketing is so important. As I have just discovered by writing about Community Supported Business. It led directly to my being invited to go speak next month at the Rural Community Economic Development Conference, organized by the Illinois Institute for Rural Affairs. I would never have thought to approach them. (Read the  Rural Research Report on Community Supported Business here).

MicroVentures, for example, built a platform that gives both accredited and non-accredited investors access to invest in startups. They look for a unique or new idea, market traction, and a solid team, and if they judge you can demonstrate these characteristics, that's what will count. AngelList is another platform for startups.

Searching the Crowd
It's not just about money. Many entrepreneurs run out of people they think might like to be their co-founders and don't know where to look outside their existing networks. There are several places to search in the crowd:

You can search the crowd for all kinds of skilled people to do jobs for you, and unskilled jobs, too. Crowdspring is a place to find creatives, for example. Big companies in many sectors have used crowdsourcing. Examples include Netflix (for an algorithm) or Unilever (for creative ad ideas).

Maybe the biggest crowdsourcing project that you certainly know about and use, is Wikipedia and its derivatives. There is no reason for you not to search the crowd.
Hoffice Crowd
Swedes Lead
Use your home as an office for sharing and energizing small crowds. The Hoffice is co-working at home. Started by Chistofer Franzen in Stockholm, the idea is spreading. 

Working with no more than 10 strangers, in 45-minute segments through the day, you share ideas, meals and exercise.

Freelancers and startups are frequent users, achieving inspiration and productivity.. Take a look at http://hoffice.nu/en/ to learn more and be inspired yourself.

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