It wasn’t that long ago that start-ups were having a tough time raising money. Given the volatile nature of the economy, why would anyone want to put money into a high-risk venture like a start-up?
Today, start-ups are sexy. This may have to do with how the Internet is becoming more integrated into how we play and work. It is the lower barriers to entry given the “lean startup” can take advantage of reduced development, software and hardware costs. It may be that investing in a start-up allows people to be entrepreneurs without doing any of the grunt work.
So is it a surprise to see a 16-year-old pop star decide to jump on the start-up bandwagon? Yup, it seems Justin Bieber is pumping some of his pop dollars into startups, possibly through a venture fund called Consigliere Brand Capital, which also involves fellow Canadian and NBA superstar Steve Nash.
If you’re looking for a positive spin, it makes sense for Bieber to put some money into start-ups as a way to diversify the mega-millions he’s making from selling music and putting on concerts for a growing army of teenage girls. For all we know, Bieber is also investing in GICs, stocks, bonds, time-share condos and chocolate chip cookie futures.
If anything, Bieber’s interest make it clear that startups are the new black. They’re cool, sexy, fun and there’s the potential to hit the jackpot if Google, eBay, Microsoft, Yahoo, AOL, et al comes along with their M&A warchests.
For high net-worth investors, startups are the equivalent to buying lottery tickets for the rest of us. When you invest in a start-up, you’re buying a dream as opposed to a reality given the failure rate for start-ups is so high. And just as spending a $1 or $5 on a lottery ticket is not a big deal when you don’t win, the same goes for a start-up that fails if you’re wealthy.
The difference with a start-up is its a public entity that has a cache for entrepreneurs and investors. Investing in a start-up lets you hang out with the entrepreneurs and fellow investors, rub shoulders with other start-up investors, and promote your investments on social media. It’s all good.
The question is whether there is a downside to start-ups being the new black? Does it mean a flood of unsophisticated money into the marketplace? Could it mean too much money looking for opportunities? Or could it see some start-ups attract money even though their idea isn’t so hot?
The upside is more financing for start-ups. Who knows, maybe Bieber, a native of Stratford, Ont., will jump-start investments in Canadian start-ups.