Entrepreneurs by their very nature are innovative people, always looking for a better way to achieve their goals. Funding your startup is always one of the biggest challenges you will face as entrepreneurs, and in particular raising VC money for an early stage company is tough. This tension has seen the emergence of a new class of early stage funding called Crowdfunding, last night I took part in a debate that questioned whether this rise of Crowdfunding could complement or even replace the need for early stage VC funding.
Whilst I believe that crowdfunding has a place, I would argue that if you company is suitable, VC funding is still the best route to building a high impact company.
Starting a tech company requires more capital than you would think. There are technology costs, space requirements, personnel to hire and you have to be aware that you will probably be operating at a significant loss for at least the first year. The first 12 months is expensive and it’s my belief that if you are trying to build a high impact company Crowdfunding alone simply isn’t going to cut it.
If you look at high impact tech companies like Google, Apple, or Amazon; they all had to raise in the millions before they were able to go public. Google raised $25 million, Amazon $8 million, and even Apple had a third round of funding where they raised $2.3 million, and that was in 1980!
“But those companies are old,” you may argue, “they come from a time before Crowdfunding was even an option.” True, I may be showing my age there. So let’s take a look at some younger ones: Twitter raised $1.16 billion; Instagram, $57.5 million; Spotify, $188 million; and even Kickstarter needed $10 million to get where it is today.