We continue our journey through the blogosphere, collecting thoughts on bootstrapping. Today, I want to introduce you to Taylor Davidson who raises a very good question: Do we need a new funding model for starting businesses?
What happens if people want to create lifestyle, cash-flow built businesses but venture capitalists wants to invest in scalable, big hit and big exit businesses?
It’ll be tough for the two to work together. Entrepreneurs always have the option of bank debt to fund a new company by getting business loans from a bank. While that model still works in a physical asset business, it just doesn’t fit the needs of the bank or the entrepreneur in the digital asset / knowledge / communication industry. And banks have a serious skillset mismatch in funding non-physical asset based businesses.
Taylor elaborates further in Venture Capital for the Long Tail:
Venture capital, for one, has yet to deliver a scalable, viable funding and economic model to fit this new model of economic organization. The traditional high-risk, high-reward, high-touch operational and cultural model simply does not fit the micro-business economy, an economy of “lifestyle” businesses based on smaller interactions and smaller bits of value exchange, created out of the need to build lives, not necessarily a business to sell.
Just as everyone is a photographer, everyone can be an entrepreneur.
How can venture capital adjust?
Well Taylor, Venture Capital cannot adjust. It’s a fundamentally different model, and only bootstrapping works in this mode. But I am sure you have already reached that conclusion yourself. Potentially, though, corporations can fund strategic plays that encourage entrepreneurs to build businesses leveraging their platforms. Examples: eBayand Amazon could micro-finance online retailers; Google could micro-finance content ventures; SunPower could micro-finance solar installers; Salesforce.com could micro-finance SaaS plays on the Force.com platform. You get the idea …
And if I were President Obama, I would sit down with the CEOs of each of these companies and work out an incentive plan to encourage them to do so.
This segment is a part in the series : Blogosphere on Bootstrapping