trendpreneur

Really interesting debate/blogpost over at TechMeetup as a result of yesterday’s Engage Invest Exploit in Edinburgh. The main points I’m reading is that Edinburgh/Scotland needs more early stage risk money, more mentors/advisors, and a more flexible ecosystem (people willing to join startups, support networks that enable this). And yet someone has to gain; the investors, professional risk-takers, can’t see a return in 3-5 years investing £1m in 20 startups, so they won’t. Guys, Y Combinator took a long punt on funding hackers with ramen money, and it’s paying off.

Also in today’s reading, two lovely nuggets of wisdom from comments on a Fred Wilson piece on the ‘hopes and dreams’ phase (a phase that Scottish businesses either get stuck in, or never experience):

The temptation to quit will be greatest just before you are about to succeed.

If you find yourself driving off a cliff, stop driving.

Contradictory, and yet not; there’s a difference between thinking you’re driving off a cliff, and actually doing so.

I’ve seen a bit of discussion about funding models recently, and have been playing around with an interesting experiment in crowdsourcing products called quirky.

For creative or product-focused businesses, it seems crowdfunding is really taking off as a concept, though I’ve yet to hear much in the way of actual success stories. The idea’s fairly simple: get loads of people to chip in when you need cash, and cash out later – either by owning part of an artwork, or by getting a discount on future products, etc.

It reminds me a lot of the way our Young Enterprise company was funded; we sold shares for a pound each to friends and family, then they got their dividend and return when we closed up at year’s end with a profit. But that was back in the nineties and so cool words like crowdfunding don’t really apply, non?

Quirky has more of a central-organisation take on stuff. Armed with designers, the ability to rapidly prototype, and some way of actually making real products, you pay to submit an idea – then cash in if your idea gets picked by the community. If you contribute along the way, either to your idea or to other people’s (you don’t have to ever pay or submit an idea yourself, mind), you gain Influence, and are rewarded based on your influence when the product finally sells.

For example, I voted for a product that turned out to be the community winner, so I gained a tiny bit of influence. I submitted a product name that wasn’t chosen, so nothing there. I answered a couple of market research questions, gaining a bit more, etc.

What’s nice about this is the company in the middle is doing a lot of the legwork but is also able to profit from zero creative outlay. I assume the funds paid by each round of idea-submitters cover the costs of internal development on those products, if not now then at least in future. Plus you’re guaranteed a winner because the community chooses the product.

Organisations are taking the middle stance in other industries as well. From brokering fashion investment to putting together crowds of art backers, there’s already several places you can go to find people willing to back you. It’s a bit like Kiva for the first world, or Zopa for businesses; Colectivo seems another name that springs out of Google (as I can never, ever remember Zopa’s name). Maybe one of these will become the place to go, especially for more traditional web or product businesses rather than creatives, where philanthropism is partially a factor.

I can totally see a hacker’s Quirky emerging, though. Almost like SiCamp in a way; people submit a ton of ideas, the crowd votes for the favourite, then the hackers split off and make the thing happen. Those who were involved get credit, dividends, returns when the business is sold, etc. But software doesn’t quite work so easily, and the middleman will need a lot of glue — plus, would you invest in a business with two thousand minority shareholders?

A mixed bag from the afternoon’s sessions, most of which can be summed up in one tweet or less. Currently in a ’state of funding’ panel with a couple of strong, if well-trodden, themes — yes, people are still getting funded, and if you can run on your own cash through 2009 you’ll be fine — having a great idea is key, and plenty of startups have great ideas now — and revenue is key. You won’t get funded with no sign of revenue and funding yourself through sales is a solid plan in the current climate.

Quite an interesting contrast between US/European points of view – some speakers are American, others European. European attitudes are perhaps more helpful now, pointing towards incubators, government initiatives vs American “VC is everything” outlook, the very thing that’s failing in the downturn.

Couple of other points from the afternoon – Morten Lund was very candid about losing everything (about to lose his house) in an investment gone wrong, and then Martin Vasavsky also mentions being bankrupt for a month in 1998. Seems like finally some realism’s entering the fray rather than the happy “see no evil” approach. I’m not sure whether they can give any more advice than “have a solid idea and make money early” – but it would be interesting to see a focus on angels as well as VCs.

Susan Wu gave a really interesting talk about virtual goods (with a slightly… weird WoW example, but then I’m too nerdy by half about that game). Consumer focused products, especially those with social components, can make money from virtual goods — think about the verbs people use to interact with each other and your product and monetise them! Gifting is primary example – but there’s also stuff like getting a ‘premium’ name, and of course the (tired but still true) example of avatar customisation. Biggest Chinese internet platform makes 70% of revenue through virtual goods (basically an IM service). Quite cool to think about this from a web point of view rather than a gaming one.

There was also a panel on branding and a couple of the main things coming from that were – brands make mistakes and by trying to build a one-to-one conversation with customers but using the wrong platform, a lot of money can be lost (and even reputation/image). However when they work they’re great. But brands, especially middle management, need analytics and to see where the money is – something that helps a brand figure out how much money they’re making by having a presence on your service is great – ROI is key. Pretty interesting given one of the things I’m trying to do with my software…