Will the next Twitter raise its money from billboards? (Probably not)
Since my last post, some month and a half ago, I have become quite acclimated with living here in Singapore. I have traveled quite extensively throughout my life but I have never spent a substantial amount of time in this part of the world – even when I fly back to Taiwan to visit the family that’s only, at most, a month-long trip. Additionally, the mentality is usually quite different. Flying into Taipei signals an actual holiday while being here in Singapore is mostly for work. Of course, and the fun. By nature of the work I’m doing, work happens after work hours – whether it be talking to entrepreneurs or reading up on the news.
Perhaps the most relevant thing over the past few weeks is the SEC lifting of the ban on general solicitations for financing. I’m not completely up to date with the exact policy changes due to this ban-lift but I suspect it won’t affect VCs as much as the general press like to point out.
The reality is that start-up financing, like in other areas of the private funding realm, has a certain exclusivity to it – and this is not the result of elitism. It’s just pragmatism; the tech community is small and referrals/personal connections are still very important parts of deal flow. Yes, there are crowdfunding platforms such as Angelist (and Kickstarter to some extent) and yes, the market is constantly changing the relationship between investor and entrepreneur, but the one thing that will continue to hold truth is the existence of trust. While I can see the potential for founders to advertise in magazines with beautiful pictures of their product/service and seductive copies that cry messages of “invest with us and we will bring the next Facebook,” the very best deals, the kind of hidden gems (or not even that, just solid start-ups with traction) will come out of high quality deal-making. The trust factor is huge – it takes months for investors and entrepreneurs to get to know each other and form that partnership. Advertising that will not expedite the process. I am a huge advocate of changing how things are done in the world, but it really still comes down to the human contact and that warm, strong handshake.
Moreover, I’m not really sure if the lifting would actually make fundraising easier. I agree that the hypothesis holds some practicality – now that start-ups are free to openly solicit money publicly, this should give entrepreneurs (and “accredited” investors… with changes in JOBS Act, perhaps anyone?) more access to money. More money equals more choices and that means more bargaining power, right? Perhaps in some cases this will help the entrepreneurs. In others, however, founders should remember that it’s more more than money on the table that they’re negotiating over. Part of the reason why fundraising is such a energy-focus draining thing for founders is the need to find appropriate money – that angel or VC who can add values that aren’t as tangible as dollar signs and lines in a term sheet. Picking a good partner could open many previously tightly shut doors – a bad one could make your life a living mess. So before start-ups forego all traditional fundraising activity, remember that money from a billboard probably won’t open doors.
Of course there will always be exceptions and of course, the picture is never black and white. Perhaps the billboard money would be exactly what a start-up needs to close a particular round. A while back, I read about the amusing tale of Alec Brownstein, who, used Google ads to get the advertising job he wanted (with $6 he purchased ads that were displayed when certain employers searched up themselves). These days, using Google ads is hardly the innovative way of reaching your customers. For Alec, he hacked the system and proved that it could work. Similarly, I look forward to the creative start-ups that’ll use public advertising to their favour.
…It’s 2AM, you’re tired and you’re driving home from a late night and a giant billboard shows up off to the side “Let AutoDriver take you home. safely and smoothly. Invest in us.”