Your Company is an Idea Delivery System
What is a successful company if not an idea delivery system? It must succeed on that level first, even before it can make money.
Financial support from equity crowdfunding and from angel syndicates has empowered new business founders and a new class of angel, the micro-angel who might be a first time investor.
This new finance stream has granted founders the freedom to leap past gatekeepers and pitch their ideas directly to the money people. This means that more good (and sometimes bad) ideas will launch into the world and be tested in the marketplace. Angel investors are also operating with fewer restrictions than ever before. Newer angels can get in the game. They can enter it with less money on the line than before. They can hear more pitches, meet more founders, and connect with more ideas.
How is all that going to work?
Answering that question involves digging into the exchanges and meetings between investor and founder that must occur to create a successful funding round. It’s about the inner dialogue of doubts and second-guessing, the journey inside the mind of the angel, especially the first time angel who is exploring investing in early stage companies, and the doubts of the founder who might be struggling with how to present themselves as well as their ideas. This is all deeper than a pitch deck, but let’s not leave out pitch decks, and instead think of them from a communications perspective. The psychology and storytelling of the pitch deck are what put ideas across to investors.
What truly got me started writing this post was a realization that came to me while running Red Cup Agency and teaching a communications class for USC.
Ideas don’t survive all by themselves. They need delivery systems and a growth medium.
What we call marketing channels, be they social media or brick and mortar locations, are the delivery systems. The growth medium is a healthy mixture of financial capital and social capital. Crowdfunding is a wonderful laboratory to deliver both at once. It’s not the only method of raising funds discussed in the book, but it can teach a founder the most about markets, marketing, and pitching.
Crowdfunding is a simple idea: You are asking people you don’t know for money. When you add the internet, the network effects of asking for money online make it a powerful “ask” with huge reach. When Kickstarter and Indiegogo were on the rise, we saw early stage ventures being funded in the millions. The zeroes weren’t important, though they were impressive. The amazing part was simply that people trusted other people online.
Think of that. It’s straightforward and powerful. As a backer of a project you are willing to hand over your credit card info to a website that you assume is secure, you assume that the proper amount of money will be withdrawn, and you assume — most importantly — that the project you are backing will be delivered. We are in the era of equity crowdfunding now, jumping up the scale and reach even more, along with the stakes for investors and funders. Companies are using equity crowdfunding for what amounts to an angel or seed round of funding. They are pitching online, to angel syndicates. For a more personal approach, they are going to regional angel associations to pitch in person. There is a learning curve to address for both angel investor and founder. Many of the projects funded by the methods described in this book will fail quietly, and others will make a lot of noise as they topple to the pavement and shatter into a million pieces, leaving founders and investors to sort through the mess.
What’s interesting is that failure and success leave the same thing behind: Experience. Founders and angels who are willing to learn from each other, and from the experiences of success and also failure are positioned for a better experience next time.
Sometimes it’s a messy way to start a business, but the potential is too important to ignore. Many companies need to get to the next level, and angel investing is their way forward.
This post was adapted from my upcoming book, The Angel Investor Handbook: A Guide for Investors and Founders.
