Saturday, February 11, 2012

Pitching to the Crowd vs VCs

It used to be that if you wanted to start a business, you had to write a detailed business plan and pitch it to Venture Capitalists. It’s not uncommon to ask a VC to invest $100k for start up costs. What would she want in return? Well, only 40% of your company. So the pitch you make to a VC has to have a certain level of granularity and probably a lot of spreadsheets. Great ideas and passion are important, but you have to be pretty confident about every one’s Return On Investment for two reasons: 1. $100k is a lot of money and 2. That VC now owns 40% of your business.

But more and more we’re seeing entrepreneurs raise money on crowd-funding sites like Kickstarter or Indie GoGo. On these sites, you aren’t looking for one dude to invest $100k. Instead you are asking 100s or 1000s of people for small contributions of $10, $50, or $100. These people won’t own a percentage of your business. They’re just helping you get started because it’s a fun thing to do. And if you doubt that people can raise start-up money this way, just go to the “best funded” link on Kickstarter.

My question is this: What does this shift from pitching to VCs to pitching to the crowd mean for how we pitch or teach students to pitch? If crowd-funders don't care about your spreadsheets or ROI, what do they care about? What makes them sign in to their paypal accounts to make a contribution?

image: where George Eastman's mansion (left) connects with The Eastman Museum (right)

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