Validation is obvious. Validation means confirming that a product or service meets the needs of its users. A startup has two customers they need to take care of: the customer and, more importantly, prospective investors. Two sides of the same coin. One offers
traction, the other offers streets made of gold. Without these working in tandem a business does not stand a chance. Validation of your businesses product will go some way to pleasing the investors. So why is it such an issue for young startups, and how can
you easily validate and win?
The bad old days
In the old days a company would build a prototype, manufacture it, (preferably via crowdfunding) then unleash the ad agencies on a completely unproven, unvalidated and often completely unwanted concept. ‘Build and they will come’ cried out many an unsuccessful
executive, convinced after a chat with four people down the old pub in the gospel of their research. You would imagine this only happens to small companies. Untrue. On the physical product side does anyone care to remember the Zune (Microsoft), the wonderful
MessagePad (Apple), or even the Amazon Fire? I think I’ve made my point.
In the new financial age, where companies now look at the alternative finance sector for raising capital, a new and powerful validation tool has risen. Enter crowdfunding.
So what’s the deal with crowdfunding
Many a company used to spend money on misleading and often complete garbage consumer groups and surveys. Investments would be up front and limited to a few million quid. Got a decent business plan? Here, have the digits to my bank account! Then came along
crowdfunding, or as we at UP like to think of it, the ultimate survey gizmo. Voters vote with their hard-earned cash. It’s a low-cost, low-risk, high-rolling validation tool. Do it right and you might just have backed a winner. Fail to get backed, ah well
it’s a rotter. Moving on.
What did UP do?
Time to tell of UP’s experience. Not many people know this but UP crowfunded itself into existence in March 2014. We live and breath crowdfunding and by what we write on this blog. Over 45 days we had 16k views and raised our target amount plus another
£50k. We entered our ‘validation fundraise’ with a business plan and came out with a business, 81 investors and some dosh to go build.
We’ve also finished three months last year at StartupBootcamp, a fintech accelerator based in London. Here again everything was about validation, validation, validation. Show that your idea is a great one and money will find you. You can of course help
it on its way. Decent traction, a validated idea and first adopters….. Congrats - you’re on a one-way ticket to the top.
What type of crowdfunding is relevant?
Did you know just 3% of the UK population knows truly what crowdfunding is? Yet the effect of crowdfunding on companies has been immense recently, a trend, which as this stat changes, surely is cause for excitement. On the reward side is Kickstarter, which
has raised over $1.4 billion. If you’re into product development that’s the easiest validation tool out there, although be wary of the Oculus Rift issue (raised $2.4m, sold to Facebook for +$2bn). If it’s a service or new digital product you're building you
probably want to look at an equity crowdfunding platform. Write a decent business plan, get some financials, a team together, and you're off.
Crowdfunding has become part of this early seed stage. No VC will look your way, their turn is later in the fundraising game. Banks are useless and angels are a rarity. For millions of companies in the start up fraternity, crowdfunding is the only real tool
to validate and grow.