It seems like everyone has an idea that they would like to bring to market. Those who have the perseverance to make a prototype now have the gigantic task of getting the necessary startup money. One of the reasons why I made the passive income section of this blog was so that future fundraising for your ideas would be less daunting. And hopefully, you could do so well with your passive income business that you wouldn’t have to raise funds at all.
In Shawn Nelson’s case, he didn’t have any income streams and chose to get his startup money using credit cards. This approach was dangerous but it worked for him. Now in hindsight he says that if he had to do everything over again, he would have worked with venture capitalists and private equity investors instead of using his credit cards.
Let’s picture his situation; for the first few years of Shawn’s Lovesac startup, he was in a race to open his stores in malls all across America. This was necessary to thwart the competition that might copy his company’s concept. Throughout this time he had to stretch himself really thin and that kind of pressure doesn’t allow for creative ideas to make a stronger product line. Had he found and worked with investors that believed in his concept at the beginning, he would have had an easier time.
My objection to this was that allowing others to take control of your business could open the door to bad decisions that are out of your control. Also, there could be personality conflicts with your investors and you don’t want a creepy guy hanging around the office just because he bought the right to do so. Shawn then said something that I had never thought of before. He said try not to be too attached to your first company just because it’s your baby because in the future you can have more babies. And hopefully by that time you will have raised up enough financing to support the business operations yourself. Shawn also believes that you have to pick the right investors that believe how you do and share the same vision.
During the interview I wish I had brought up the subject of crowd funding because it seems to be picking up a lot of speed. When I first heard of this way to raise startup money, I was in disbelief. Anyone who has a great idea and a working prototype can go to a site like www.indiegogo.com, and create a product profile. People donate money so that you can bring it to market or reach a larger audience. In return for the donations, people do not get partial ownership in a company. Rather, they get trinkets like coffee mugs and t-shirts. For large donations, people sometimes can receive a finished product. I spoke about Solar Highways in another blog last month as they began their campaign on indiegogo. Today they have officially raised $1,000,000 in one month’s time. Last month when I saw their campaign they were at $30,000 and I was surprised that they could even get that much with the cheesey gifts they were offering.
There are actually many who have done well with crowd funding, including my friend. He was living in a shelter on the east coast and needed to get a bus ticket to California where there was a job waiting for him. Well, he put out the need to his contacts on Facebook and in a week’s time he had enough money for the bus ticket. This kind of funding works in the US because there are a lot of generous people here with money to burn. They throw their cash at new startups because they LOVE the rags to riches stories. And you know what? People in other countries know this all to well, unfortunately. In one eastern European country that I have visited 3 times, people would walk up to me and beg when they noticed I spoke English. They would be clean and well dressed but my American identity made me a constant target.