Great ideas often have the humblest beginnings, and it’s only after a ‘Eureka!’ moment that many realize their true potential. An excellent example is Avon, one of today’s most popular cosmetics companies, which began as a single door-to-door book salesman named David H. McConnell. McConnell noticed that he made more book sales when offering free samples of perfume to his female customers, and so he decided to drop the books permanently, setting up shop as the California Perfume Company.
His business took off, but like many, it required more working capital to get further off the ground. In his time, obtaining new business funding was only possible through banks or by borrowing money from friends and family, so McConnell likely went to the local branch and made his pitch. What eventually resulted is a multi-billion-dollar company, but what would Avon be today had McConnell failed to find investors? It likely wouldn’t exist, at least not in such an impressive state.
Investment is how a society collectively chooses which ideas are most worthy. It’s what turns a garage-based startup into a tech powerhouse listed on the NYSE, and this notion creates enormous amounts of wealth for those who can participate. With the prevalence of the internet and the dot-com era, launching a new IT company has become easier than ever, but unfortunately, the internet’s convenience doesn’t extend into the investment sphere. It’s not difficult to invest in companies that are already established via the equity markets, but what about companies that have yet to bloom?
Blockchain Breeds Change
Barriers to entry for casual business investors remain hard to overcome. One can work extensively to try and break into angel investment rounds, but the amount of paperwork and effort required are a significant investment themselves. The transactional costs to process deals are daunting as well, but even so, the best ideas usually receive their funding behind the closed doors of venture capital firms, due to their iron grip on institutional money.
Retail investors want to help startups by putting forth their own money, and rightfully so, given the potential rewards. However, the opportunities to do so are held at arm’s length, tantalizingly out of reach. It’s not that startups wouldn’t appreciate more variety in where funding comes from, especially if they can skirt the draconic equity requirements common to any VC firm, but the gatekeepers of this status quo keep it shut for selfish reasons. This has been the reality for some time, yet decentralized blockchain technology is already illustrating to the market that the tides are finally changing.