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More thinking about startup financing

May 23, 2014

The general matra of traditional angel/VC funding is “high risk/high reward.”  The idea because you don’t know what is going to happen with the standard, you can’t provide debt financing.

But maybe that isn’t true if you mix it with reward-based crowdfunding.  The idea here is that instead of building up the company first and then looking for customers (which might fail badly), you go out onto kickstarter or whereever and then find your customers first.  You get a list of people that have pledged to pay for a product or a service once it is online.

At that point you don’t *need* to hand over equity or a VC.  You come to me, get a loan, build your product, get your service online, and then collect the money from your pledges and hand that cash over to me.  There is risk, but it’s not as if we are flying blind.  You *already* have customers that have pledged money for your product or service.

This seems to me a *lot* more efficient.  Instead of wasting money on failing companies, you do all of the market research and customer gathering *BEFORE* you get financing.  If it turns out that no one is willing to pledge money for your idea, then you try again and again, until you come up with something in which people are willing to pledge money for.  Instead of pitching your idea to VC’s, you are pitching your idea to future customers, and the cycle times are a lot less.

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One Comment
  1. John Phileas permalink

    Found your blog from quora. Pretty interesting stuff.

    That’s not a bad idea, but there’s risk in whether the product made will match what the pledgers were thought they were buying. I don’t know how Kickstarter handles that risk.

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