Venture Capital is Dead

Fifty years ago, if I told you that venture capital funds would replace traditional banks, you would not have believed me. And yet, here we are.

Venture capital is dead. There, I said it. In the last 12 months, over $5 billion in venture investments have been lost globally due to a lack of return on investment from these funds. This was not an isolated incident either — there have been many more casualties across the globe as global markets continue to plummet with no end in sight. So what will replace VC?

Crowdfunding

No, I don’t mean Kickstarter. I mean StartEngine, Republic, Honeycomb Credit, and the thousands of similar platforms that are exploding across the internet. Crowdfunding is a method of raising capital by asking multiple investors to contribute small amounts of money for an idea or project in return for some return. This ‘return’ used to be discounts on the products. It is now evolving to equity, debt, and even revenue-based returns.

Crowdfunding is the perfect replacement for venture capital because it democratizes access to investment. Anyone anywhere can invest in a company and have a chance to see a return on their investment. This not only levels the playing field but also incentivizes investors to do their due diligence before investing.

The downside of crowdfunding is that it can be riskier. Investors need to be comfortable that they may not receive anything back if the company fails. However, with the right due diligence, this is mitigated somewhat.

Crowdfunding is also a great way to build a community around your product or service. When people invest in your company, they feel a sense of ownership and are more likely to be advocates for your product.

The bottom line is that crowdfunding is a great way to raise capital, build a community, and get your product or service in front of more people. If you’re looking to start a company, I would highly recommend considering it as an option.

Revenue Based Investing

Revenue-based investing (also known as revenue sharing) is a newer form of investment, gaining traction in the last few years. With this type of investment, the investor gets a percentage of the company’s revenue until they have received their original investment back, plus a return on investment.

This type of investment is perfect for companies that have a little bit of revenue history.

It also allows investors and founders to work from the same side of the table. Traditional VCs often force founders into making unhealthy growth decisions to make the always out-of-reach 10x return. This is not the case with RBI. It allows investors to enable founders to grow at more reasonable rates and takes much of the toxic pressure off the table that has become all too relevant in today’s startup world.

The downside to RBI is that it can be challenging to find investors willing to do this type of investment. However, as the model becomes more popular, this will likely change.

Overall, revenue-based investing is an excellent way to raise capital without giving away too much equity or control.

Cashless Startups

This one terrifies me. It is scary because, as a revenue-based investor, I have no idea how to compete. It is also a confusing concept in several ways, so I will do my best and explain the model.

What if instead of getting customers to pay cash for products, you created your own cryptocurrency and had them use that currency to pay instead of cash?

The benefit here is twofold. Here are the steps it takes to pull off.

A) You create a decentralized microeconomy around your business by creating your own currency (probably using eth).

B) You buy a bunch of your own coins upfront.

C) You advertise your business, and people who believe you will do well buy your currency in hopes of it rising as more people buy it to buy your product or service. This is a form of unregulated investment. It’s the wild west out there.

D) You slowly sell your coins as the price rises to use for operations. This has to be done carefully, as you do not want the price of your currency to drop drastically, undermining your early investors. The key here is balance.

E) Hold enough of your coin to become filthy rich if your service takes off.

F) Continue operations as usual, just without traditional VCs’ pressure, downside, and time constraints.

G) Poof… Cashless Startup.

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With traditional venture capital dying and alternative investing on the rise, it’s time to think about how you want your business to grow. If VCs are too risky for you or if they force founders into unhealthy growth decisions, consider a cashless startup strategy that relies on community building and a cryptocurrency of your own creation. Revenue sharing is an excellent option for companies with less than three years in revenue history who need more money to scale their company quickly without giving up equity or control over operations.

The funding world is in the beginning stages of a blistering transition. I’ll be doing my best to keep you updated.

Good luck out there,

JP