Remember back in 1998 and 1999 when everyone, at least in my world of web and application development, was getting checks for just crazy sums of money? It was the Dot Com Boom, yes it is. I mean was. Or is?
What We Learned About Web Start-ups The First Time Around
Back in the late 90’s I made some pretty good cash doing websites for people who really needed a data driven, dynamic web presence. They already had businesses and not just business ideas. It was the day of Front Page and early Dreamweaver when people were finally learning the difference between “the Internet” and AOL. It was in the days when you asked for someone’s email address and they gave you their AOL username without the @aol.com part. It was the wired west.
My sister ran the front office for a startup here in Atlanta who received millions of dollars from angel investors and proceeded immediately to buy everyone matching BMWs, rent some of the most expensive space in town and fill it with ungodly expensive furniture and decor. Since that wasn’t enough they overpaid everyone and threw lavish parties. They didn’t even make it to the bust, they were long gone before that happened. Bad management, no real product and pure money lust propelled them to failure – along with the millions they never earned or repaid.
Dot Com Boom 2.0?
Because we have now seen the failure of “the field of dreams” scenarios and the success of some of the most unlikely cast members investment funding for idea projects is once again flowing. In reality one is much more likely to win from investing in a successful Internet startup than they are to win big in the lottery or at the casinos. Why, then, does it seem such a challenge to get small investments from large crowds of the same people who will gladly spend $500 a year on the lottery and have no problem losing a few hundred at the craps table? Perception …
How Facebook’s IPO Will Change The Way We Invest
Until recently before one could “go public” and accept investment funds from ordinary people who also want a shot at greatness the corporation had to jump through many legal hoops to prove their viability. Likewise investors had to prove their financial status to make investment early in start-ups. Not that this stopped bigger investors but that only lead to people with money getting the first shot at big payoffs while smaller investors didn’t stand a chance to get in before the IPO or in the first round of sales.
As long you’re investing money that you can afford to lose, helping someone take a crack at making his or her dream come true can actually feel pretty good.
Enter 2012 and some very important changes to the laws which affect how companies, specifically start-ups like Atlanta’s CheepMonkey, can raise capital. Prior to the passing of the JOBS Act the system was, “set up so that you have to have a certain amount of money in order to invest in startups,” Alen Peacock says. Regulations require that you have $1 million, excluding the value of your house. “So for people who don’t meet those minimum requirements,” he says, “they’re just out of the game.”
Another start-up manager, Sara Hanks adds in the NPR interview quoted above, “Let’s be clear about this, most startups are not going to get anywhere,” she says, which raises a question: “Why would you invest in something that’s probably going to fail?” According to Hanks, the answer is that it’s fun. As long you’re investing money that you can afford to lose, helping someone take a crack at making his or her dream come true can actually feel pretty good.
Now with the IPO of the unprecedented success of the start-up Facebook, run by – no offense – a bunch of children with absolutely no business experience or savvy, everyone will have glittering gold in their eyes about Internet based start-ups. They may not, however, have been able to play had not it been for the JOBS Act. Arguments are diverse and plenteous so research on your own.
The Bottom Line
There are start-ups who have great ideas and may make it on their own leaving the founders with millions or billions of dollars in reward for their sweat and blood. Then there are great ideas which garner millions in investment only to never get their wings. Somewhere is a middle ground and the odds are more often in favor of the company starting up to actually provide a service and not just for the purpose of being acquired.