Tag Archives: startup

Entrepreneurship

Why VC Firms Aren’t Spending

Todd CroslandIt is no secret that startup funding has significantly decreased since the start of the new year. This was foreshadowed at the end of 2015, in which startup funding slowed down, and new companies were given smaller and smaller investments from venture capital firms. This morphed into a disappointing, and somewhat frightening, beginning of the year for early stage companies. However, the new startups do not lack funding because venture capital firms are raising less. In fact, venture capital firms seem to be doing fine in terms of the money they are accumulating. It turns out that the root of the lack of funding lies in what venture capital firms are now seeking in a startup company.

It turns out that venture capital firms have begun to accumulate a large amount of money because of the lack of faith in the startup companies with which they are connected. They are worried the companies they have put money into will crash and lose money, and they want to be prepared for this point. Although some companies have come to terms with the drying up of funding, and are responding accordingly, most are living in a state of denial. This is why venture capital firms are basically hoarding their funds.

It is all a result of the startup funding boom that occurred over the past few years, in which early stage companies were able to raise massive amounts of money and spend most of it in attempts to beat out others. With this lack of funding, they are faced with the choice to cut costs in order to be a self-sustaining company, or try to find more funding. The latter comes at a large cost and could be detrimental to earlier investors and employees that already have a share in the company.

What are venture capital firms looking for if not potentially successful companies in their early stage? As it turns out, these firms are choosing to spend their money on already-established startup companies. Companies that have already experienced some level of success are the ones being funded at this point, although the funding is still moderate. Venture capital firms are operating with the fear that startup companies in which they invest are going to collapse. Therefore, they are putting more investments into the ones they know will not.

Early stage startup companies can no longer be extravagant operations. Founders and CEOs have to get into the habit of cutting costs wherever they can, becoming a self-supporting operation as soon as they can. Startups can no longer count on venture capital firms for funding, so, until this lull blows over, all companies have to adapt.

Entrepreneurship

Venture Capital Firms Bring in Money

Todd Crosland EntrepreneurshipVenture Capital firms have been in existence for years, yet they do not always bring in as much money as they would hope. This year, however, is different. Since 2016 began, these types of firms have been able to collect money at a rate greater than they have in fifteen years. More surprisingly, they are managing this feat even as the valuation of many startups begins to drop. Even as ‘unicorn’ startups become less enchanting in Venture Capital, investors are still reaping rewards.

Venture Capital firms have been able to raise over ten billion dollars since the beginning of the new year, at an astonishing rate. It turns out, while investments in startups are slowing, investments in Venture Capital firms are not. Of course, this was predicted last year. When polled, the majority investors in these funds announced that they would continue to match or increase the amount of money they were giving to firms. The firms, however, are the reason startups are having more trouble raising money.

Why is this, exactly? Well, IPOs did not have a good year in 2015. The market was unpredictable, and new companies focused on technology were not as impressive as they have been in previous years. The Venture Capital firms have chosen to dole out money more slowly because startup valuation keeps going down. They are simply not sure which companies are going to make money, and which will remain stagnant or fail. Entrepreneurs who take the billions in Venture Capital raised as a good sign must keep this in mind.

Venture Capital firms that are amassing this money have a few options for where to go from here. They seem to have given up on pouring money into late-stage startups, but may continue to focus on early-stage companies. At least early-stage investments have the ability to give investors a portion of return, therefore this may be the most viable option for Venture Capital firms.

However, this also calls into question how this will affect the slowing entrepreneurial boom in the United States. Of course, if Venture Capital firms choose to invest in early-stage startups, fresh faces in the startup world need not worry. However, that leaves later-stage startups out to dry. If the funding continues to shrink for these late-stage companies, which I suspect it will, we may see an increase in startups trying to exit more quickly than they would normally, or than others have in the past.

Now, entrepreneurs must focus on generating a positive cash flow. This is the only way to make sure that startup companies stay afloat, which may bring in additional funding along the way.

Entrepreneurship

Everything you Need To Know About Title III of the Jobs Act

Todd Crosland Entrepreneurship

In a previous blog post, I spoke about a government policy called Title III of the JOBS Act which would make equity crowdfunding available to startups and small companies. While the law has not yet come to pass, it will open the door for a number of aspiring entrepreneurs to partake in crowdfunding on the equity level, rather than simply doing regular crowdfunding. Equity crowdfunding is more beneficial because, when an investor gives money to a business, said investor will then have ownership of a small portion of the business. Equity crowdfunding has become very popular due to its mutually beneficial nature. It has been met with some incredible results and it is exciting to think that soon a law will allow small companies to invest as well. Here are a few things to keep in mind about Title III of the JOBS Act:

1) What information is required of a company that is gaining investors?

When a company gains investors, there is a certain amount of information that, by law, this company must reveal. It must tell investors the price of securities, the method by which they determined the price, the target offering amount, the deadline by which to reach that target, and whether or not the company will be willing to accept investments that exceed their target. This information must also be filed with the SEC. In addition, a company must provide a description of the product or business and have a discussion regarding the financial condition of the company. Lastly, companies must provide information about directors, officers, and owners of 20 percent or more of the company, as well as yearly financial statements.

2) What can we as the “crowd” invest?

One legal restriction placed on investors is that if either the net worth or the annual income of the investor is less than $100,000, investors are limited to the greater of $2,000, or 5 percent of the lesser of their annual income or net worth. In the case that both the net worth and the annual income of the investor are greater than or equal to $100,000, there is a different restriction. In this case, investors are limited to one tenth of the lesser of their net worth or annual income. 

3) Under equity crowdfunding, what liability will a company and its officer have?

Unlike Kickstarter, equity crowdfunding involves selling securities rather than simply the pre-sale of a product. There are both state and federal laws in place that restrict the sale of securities. If you do something against these laws, it is possible for your company, along with its directors and officers, to be sued. In some cases, people have even gone to jail for breaking these regulations. Essentially, telling the truth is absolutely mandatory because, if you lie, you can get in some serious legal trouble. 

These are just a few pointers to keep in mind when Title III of the Jobs Act comes into play. This law will play a large role in the growth of equity crowdfunding by opening the playing field to small businesses rather than just large companies.

Entrepreneurship

Choose Equity Crowdfunding over Crowdfunding

Todd Crosland

Any company that has thought about raising money knows about websites such as Kickstarter and Indiegogo, which fund company startups through online donations by regular citizens. This crowdfunding practice is popular among small companies and online sensations. It works because the person(s) raising money offers a small incentive for donation. In The Oatmeal’s campaign, for example, everyone who donated was sent a copy of their game before it was officially released on the market. For others, the gift is a t-shirt or some other type of trinket. However, many companies are, instead of going to open crowdfunding websites, getting involved in equity crowdfunding. There are many benefits involved in equity crowdfunding that are not present in a regular crowdfunding campaign.

The founder of Spacefy, for example, wanted to raise a large amount of money for his company that would have been very difficult through regular crowdfunding. So, he tried equity crowdfunding for his company and ended up raising more money than he had initially needed. Spacefy decided to try equity crowdfunding before Title III was passed, meaning that it was not a more popular means of fundraising. However, they took the chance because they wanted the extra money and publicity that could come from equity crowdfunding.

They are, of course, not the only company to choose equity crowdfunding over regular crowdfunding. Many investors are excited by the chance of being able to gain equity in a company when investing. This would mean, if the company did well, the return on their investment would grow, rather than remain stagnant in something like a t-shirt.

I believe equity crowdfunding is the next big stage of crowdfunding, poised to become even bigger than regular crowdfunding. With companies backed by regular civilians on Kickstarter doing so well, more and more people who gave money wish they got a return on the company’s success. Of course, there are risks that everyone putting money in equity crowdfunding needs to take into account. Like any investment, those that invest need to make sure they truly understand and believe in the company that they give their money to. Take into account that many startups are not successful, and therefore there is a high chance of losing money, or not gaining a return on investment at all.

However, there will be a few companies that succeed. There will be more companies such as Oculus that become worth billions of dollars. Those companies will create a large return on investment, and equity crowdfunding will make sure investors get rewarded for their efforts.

United States

Equity Crowdfunding Legal in 2016

On May 16, 2016, Equity Crowdfunding for non-accredited investors will become legal. This was, of course, a part of the JOBS act that was passed in April of 2012, but the equity crowdfunding provision has been on hold and in debate for over three years. The Securities and Exchange Commission published extra regulations that finally got the provision passed.

This equity crowdfunding provision, also known as Title III, was in debate for such a long time because of the fear that it could invite more fraud. Title III, in its simplest form, is a provision that allows non-accredited investors into equity crowdfunding. Basically, the average Joe will now have the ability to invest in a young company. Title III was initially thought of as a way to keep up the incredible equity crowdfunding growth rate that has been seen for the past five years and now, with its implementation, this growth rate may even get larger.

Of course, there will be regulations. Title III is being implemented through broker-dealers and internet portals specifically designed to host public offerings. This means that anyone can invest in a company, but there is less of a chance of fraud and illegal activity. Additionally, there are limits on the amount of money that can be raised through one investor, which depends on the income of each individual investor. There are also limits on the amount of money that a company can raise through these portals within a 12 month period.

The companies raising money are required to submit detailed answers to investment questions before accepting any offers. This includes, among other items, the risk of investing in their company. There are many other requirements the startups must meet, and questions they must answer, before entering these secure channels to accept investments. However, the payoff in the end will be much greater, as now there is a wider population from which to accept investments.

Title III is a great way for new companies to find investors. It allows companies to advertise their offerings to the public, which was before illegal, and to freely discuss business with investors through secure portals. Although there is dissent, I believe that the implementation of Title III will do great things to the startup investment space. Although the significant regulations imposed on companies within Title III could be a barrier to progress, this provision will surely help more startups become successful.

For more information on the passing of Title III, read this article on Mondaq.

Entrepreneurship, United States

Military Spouses in Entrepreneurship

There are many different subgroups within the umbrella of ‘entrepreneur.’ A few examples would be social entrepreneurs, tech entrepreneurs, young entrepreneurs, and, most recently, military spouse entrepreneurs. Entrepreneurship within the community of military spouses has been growing for a good reason. The careers of the husbands and wives of those in the military are usually put on hold due to constant movement and the responsibilities of caring for their children as single parents. Entrepreneurship has given these individuals a way to delve back into their preferred career paths from remote locations.

Of course, being a military spouse with a business to run is not easy. Business owners have to deal with the challenge of managing a remote workforce, and engaging their target audiences, in the midst of busy days and weeks. This is why nonprofits such as The MilSpo Project have been formed. They educate military spouses on how to manage their time, and provide support to any who require it.

Very recently, an article came out in Forbes about the company R. Riveter, which was begun by two military spouses. Lisa Bradley and Cameron Cruse founded this company of handmade products in lieu of taking jobs below their experience levels because their husbands were in the military. R. Riveter is a company based on female empowerment, and Cruse and Bradley are making it work in spite of their busy schedules.

The amazing thing about this company, besides the high-quality handbags, is that it works to employ other military spouses as well. Once Bradley and Cruse realized they would have to put their professional careers on hold because their husbands were in the military, they wanted to make a company to help themselves and other women. All of the products of R. Riveter are handmade by military spouses who live in different locations in the country.

Additionally, of course, everything in R. Riveter can be accomplished in a remote location. Bradley and Cruse have formed the company with the knowledge that their employees will be moved around, so they have made everything flexible. Furthermore, all of their materials are made from recycled military equipment. Even their products are the embodiment of the life of a military spouse.

In order to be a happily employed military spouse, a creative business model has to be put into play. Bradley and Cruse realized this early on in their careers, however I doubt they will be the last. I expect to see a rise in the military spouse entrepreneur community as more people realize they do not have to give up their career goals for the career of their spouse.

Entrepreneurship

Is All Entrepreneurship Social?

The term ‘social entrepreneurship’ has become popular in the small business world. It’s a buzzword that is defined as utilizing entrepreneurial techniques to find solutions to social issues. A ‘social entrepreneur’ is a business owner who connects their company with some philanthropic cause. For example, Jordan Kasselow runs the company VisionSpring, which sells inexpensive reading glasses in developing countries.

So far, this makes sense. Social entrepreneurship is about solving social problems, which equates to making philanthropy part of a company’s mission. However, Ray Hennessey, a writer for Entrepreneur Magazine, does not agree. In a recent article, Hennessey postulates that all entrepreneurship is social entrepreneurship, and separating the definitions of the two is harming the entire startup industry.

In his opinion, all business brings good to society, whether or not the business is philanthropic in nature. He is not wrong. Entrepreneurs start companies based on a problem they want to solve. Whether it is a problem that affects an entire country, or perhaps just an individual, a company can only succeed if it has a product that people want to buy. Namely, a product that solves some sort of problem.

Does it matter if social entrepreneurship is defined as being separate, and somehow bigger, than regular entrepreneurship? Hennessey thinks so. He writes that CEOs of companies, big or small, are thought of as being greedy money-hoarders. This is why stories of companies doing any good, whether it be donating to charity or treating employees well, go viral. People are surprised when CEOs care, but are not surprised when a company hurts the environment or cheats employees out of money and benefits.

The term ‘social entrepreneur’ has become a loophole to this stereotype. Rather than being an actual entity, it has become a marketing tactic for starting a business. Social entrepreneurs are looked upon more kindly, and therefore are able to raise more money, but the nature of a marketing tactic is that it is only that. Social entrepreneurs are no different from regular entrepreneurs, save in how they define themselves.

Hennessey makes a good point in his assertion that companies known for bad deeds have contributed to social good, and conversely companies known for their philanthropy have, at some point, harmed society. There is no black and white between ‘good’ companies and ‘evil’ companies, as CEOs are faced with having to make a profit while solving social problems.
Entrepreneurs that want to be successful in the long run are focused on solving a problem in society, and on treating their employees and customers well. That sounds like doing social good to me.

Entrepreneurship

10 Highest Grossing Crowdfunding Campaign

A couple of weeks ago Pebble smart watch launched the most successful crowdfunding campaigns in history, raising over $16.5 million in crowdfunding revenue.  Over 60,000 individuals backed the campaign, and the launch date is set for May of this year. This crowdfunding campaign beat the previous record holder, the Coolest Cooler that was able to raise $13.3 million. Below is a list of the 10 most successful kickstarter projects of all time.

 

1)   Pebble Time raised $16.5 million

2)   Coolest Cooler raised $13.2 million

3)   Pebble 1st gen smartwatch raised $10.2 million

4)   Exploding Kittens card game raised $8.7 million

5)   OUYA games console raised $8.5 million

6)   Pono Music player raised $6.2 million

7)   The Veronica Mars movie raised $5.7 million

8)   Bring Back Reading Rainbow raised $5.4 million

9)   Torment: Tides of Numenera game raised $4.1 million

10)  Project Eternity game raised $3.9 million

 

United States

Mayors Focusing on Entrepreneurial Growth in their Cities

Todd Crosland US EntreprenerushipWhat are the public policies needed for a city to increase their entrepreneurship growth? In a recent article done by Entrepreneruship.com, they discuss actions taken by different mayors from their respective cities, and the policies and actions that they are taken to improve local economic growth.

In Raleigh, North Carolina, Mayor Nancy McFarlane has started an initiative to increase the city’s public partnerships with local entrepreneurs. She recently hired an Entrepreneurship Manager to follow up with local businesses and business owners. The Mayor also injected $100,000 into Citrix’ new accelerator program to aid local businesses with capital connections and local resources.

In Cincinnati, Ohio, Mayor John Cranley is funding a 30,000 square foot building that will house a large percentage of the city’s startup ecosystem. Cincinnati’s startup ecosystem includes Cintrifuse, a mentoring organization, Brandery, a startup accelerator, and CincyTech, a seed stage venture capital firm.

Mayor Andy Berke from Chattanooga, Tennessee is taking the route of offering direct incentives to startup companies. The incentives for these small businesses come as a $500 credit for each employee that they hire. Mayor Berke is also pushing an Open Data Policy, which will create a more transparent startup community in the hopes of more innovation based on statistics and big data. The city is also in the early development stages of building an Innovation District.

Next we have Mayor Mike Duggan from Detroit, Michigan. Detroit’s startup environment is on the rise as Microsoft Ventures recently announced their plans to build an office in downtown Detroit to perpetuate their increasing startup interests. Mayor Duggan also hired an entrepreneurship manager for the city as well as injecting $3 million into an accelerator program for entrepreneurs.

Asia, Entrepreneurship

Startup Environment in Southeast Asia

Todd Crosland Asian EntrepreneurshipAccording to The Establishment Post, South East Asia is being called the next Silicon Valley with its innovative and unique features that differentiate it from the startup industry in the United States. GGV, or Golden Gates Ventures, is one of the six venture capital companies that have been entrusted by the Singaporean government and private sector to aid in the development of their emerging startup industry.

Vinnie Lauria, founder of GGV, claims that the entrepreneurial startup scene in Southeast Asia differs from the US startup scenes in that it is comprised of locals creating products for locals.

Lauria gives us an example of the commuting service startup, GO-Jek, as a company that is innovating for the local people. 90% of Indonesians do not use credit cards, so Go-Jek offers an immediate currier service for locals who opt for their cash-on-delivery service to obtain materials purchased online. The company is meeting the demand for a delivery middleman, creating a more convenient e-commerce environment for the people of Indonesia.

This intrinsic Asian entrepreneurial way of thinking has opened up a more Asia-focused startup industry that sets the startup scene in Asia apart from Silicon Valley. The government is a bit of a roadblock for many Asian countries, but the Singaporean government has allowed for $100 million of investment in the form of six venture capital firms. This will allow for more startups to come out of the woodwork, considering the difficulties of obtaining series A investments.

Lauria points out that along with government involvement, more awareness needs to develop to bluster the Asian startup scene. Lawyers and business developers are needed in Asia who can truly complete these companies and make them attractive for global investors in the long run. The Asian startup scene certainly does not have the extensive entrepreneurial experience as in the United States; however, the starting blocks are coming to fruition. Once the entrepreneurs are able to create a startup environment for their own people, they will be able to look at their companies from a more global perspective.