February 25th, 2015 16:08 EST
Every entrepreneur that`s ever started a business probably had to boot-strap that business in some way or another. That means making compromises - sometimes bad ones and sometimes stupid ones - in order to get the job done.
In the long run, doing what you have to do is not stupid " if it works out. Unfortunately the odds do not favor decisions that are less than optimal.
For example, how many people try to get others (especially sales people) to work for free on a commission only (i.e. pay on success basis) because they don`t have any money to pay in advance? The problem with that formula, first, is that you usually don`t get the best sales people. Number two, you probably don`t get the full and undivided attention of the sales people. Their priority is not your priority, because you`re not paying them to make your business their priority.
I understand why people do this, and I`ve done it myself. But I`ve also done it where I`m capitalized in advance. Let me assure you, that being capitalized in advance is better.
The tactic`s ironic. Young companies will generally employ salespeople on commission with very high payouts. The more mature the business becomes, the lower the payouts go until the point where companies rely on media and advertising and pay little or no commissions at all. Ironically, at the end of the day, commissions are the very most expensive form of compensation for moving product. And at the end of the day if you have you have the volume to support it, media advertising is far and away the cheapest.
This is not a criticism of doing what you have to do nor of making compromises. Rather, I hope readers will try to organize themselves so they can be smart " providing the best chance of success.
As I watch the new CrowdFunding industry unfold, I`m watching the businesses of undercapitalized operators trying to take a stab at this burgeoning industry. Most are going to fail. Some are going to fail miserably. Many already have.
There are several reasons. First, almost all of the operators who are setting up portals and other facilities to help other people raise money are undercapitalized. That means before they even get out of the gate, they`re making business decisions that are stupid. They`re not stupid on purpose: they just don`t have any other choice. And if they had some capital, I can assure you they`d be making other (hopefully better) decisions. They`d be hiring people. And they wouldn`t be running around parading a patchwork of unpaid or undercompensated individuals, who may or may not be well suited for the job that they`ve been awarded.
Think about it: businesses in the business of helping people raise capital are undercapitalized. How is that for irony?
The second reason that many of these CrowdFunding companies are going to fail is because the securities rules governing the way the capital raising works, prohibits the payment of upfront fees to most of these companies. Those rules are making it very difficult for many of these upstart portal operators to be successful in the short run so they take participation interest on the backend. And because they`re undercapitalized, they can`t wait until the long-term to get their backend interest.
So most portal operators are doomed to be out of business before they start. Further, because they`re undercapitalized they may or may not have much of a following, and they probably don`t have the capital to secure a substantial database of investors which is what the dealmakers, who list on their site, want to have. For all of these reasons, most of these companies that are out there purporting to be portals will either fail or fail miserably.
But there is a solution. And the solution involves being properly capitalized and curating the right part of the deal cycle. Most of the portals that are curating deals. Because of our Syndication and Hedge Fund Symposium program, and because of the 450 syndicators that we have in our network, we don`t need to curate deals. We want to curate "dealmakers". If you`re a strong dealmaker, we want you to be part of our network and our process. We are properly capitalized. We do have the ability to get income long-term. And we do have a business model that doesn`t levy fees on people up front and further allows us to get into the long-term and participate the way that so many dealmakers want us to participate.
If this type of structure sounds attractive to you, then we would like you to be in touch with us so that we can share with you a new type of CrowdFunding portal that`s designed to work for dealmakers. This is not for somebody who makes an occasional one-off transaction which is what so many of the other portals are targeting whether they recognize it or not.
We look forward to hearing from you.