24
Jun

Does Public Micro Funding of Very Early Stage ISVs Help or Hinder Creation of Viable New Businesses?

Perhaps it is harsh to say, but some very early stage businesses are better off as concepts than actual funded efforts. For early stage Independent Software Vendors (ISVs) this is, too frequently, the case. Simply put, either no one on the management team has any prior experience with the kind of immense start up effort at hand, or the product concept, itself, has not been studied, sufficiently, to warrant capitalizing the notion and kicking off a business with it.

But with the availability of public “micro funding” resources, commonly referred to as “crowdfunding”, more of these notions and teams are actually embarking on a business effort, than one would otherwise hope to be the case.

Jenna Wortham published an article on the New York Times web site on June 14, 2014 titled Why That Phone Charger Took Two Years to Arrive. Ms. Wortham’s article, perhaps inadvertently, reports on some of the early stage gross errors capable of crippling an ISV business powered by a creative, but poorly assembled product notion.

The subject of the article is Ms. Wortham’s history of an investment she made, via KickStarter, a famous “crowdfunding” web site, in a business set up to sell a product called “JuiceTank”. As is typical of these investments, Ms. Wortham received no equity in return for her investment of $55.00. What she received was a confirmation of her order for something once called “JuiceTank”, which later became something called “the Prong”. As Ms. Wortham explains, this product promised to look like a “slim iPhone case”, but to serve as a “wall charger” for an iPhone.

So what’s the problem with all of this? the reader may ask. First and foremost, any investment in a start up with absolutely no product to show should be an equity investment, and not an order. After all, it took two years for this business to fill Ms. Wortham’s order. Further, Mr. Lloyd Gladstone, one of the founders of this “business”, as Ms. Wortham reports, “had no prior experience with products or manufacturing.” Mr. Gladstone’s lack of experience, when combined with the prior experience of his partner, Mr. Jesse Pliner, in Investment Banking, evidently resulted in acceptance in the KickStarter “crowdfunding” effort.

But who really benefits when an effort like “the Prong” nee “JuiceTank” secures the capital to get off the ground, but then leaves a lot of very small investors literally waiting years for delivery on a product purchased on no more than a whim. I would argue no one. In all likelihood Messrs. Gladstone and Pliner have felt no small amount of pain as they meander through a series of very dangerous errors. In turn, the group of very small investors waiting for their $55.00 purchase to show up on their door step, has also felt some pain.

Simply put: public micro funding, in this writer’s opinion, benefits no one other than the venue hosting the effort. Small investors are better off sitting on the sidelines while legitimate venture capital makes an effort to properly manage ISV notions all the way through to viable emerging businesses.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved