Around 90% of startups ultimately fail, and the reasons leading to failure are well known: Undercapitalization, scaling challenges, lack of a competitive advantage or realistic IP. However, what about the 10% that succeed? What did they do to beat the odds?
To create a pathway for market success, startups need two essential assets groups: venture capital and creative capital.
Venture capital is formed of the financial and operational assets invested in a new, unproven business enterprise. Creative capital comprises the design and development assets that bring an ingenious idea to life.
Venture capital gets the most attention, but it’s creative capital that can ultimately last longer and potentially become more valuable.
Billion-dollar unicorns like Airbnb, Lynda.com (now LinkedIn Learning), Square, YouTube, Byju’s and Pinterest have benefited from “creative” founders who were physical and digital product designers, educators, developers and visualizers. These companies found great success by creating and amplifying stories and visualizations to spark interest.
Venture capital usually arrives after rigorous assessments and due diligence cycles are completed. However, when creative capital is developed and applied before venture capital, it helps speed up these assessments and analysis of a company’s concept, often accelerating product deployment, reducing founders’ dilution and improving valuations.
Depending on your industry, creative capital is defined as a mix of strategic assets that may include:
These assets are almost always created to combine with business planning and introduction purposes, eventually helping companies bring their ideas to life.
Developing or acquiring creative capital in the startup process can accelerate the entire company, often generating myriad long-term benefits that can range from cultivating early belief in the company and proof-of-concept assets to improved valuations and attractiveness for talent and co-creation partners.
Below are a few additional benefits of creative capital, plus examples of startups putting it in action:
Market validation: By leveraging research tools to extract audience insights, creative capital can turbocharge business planning and show prospective investors and partners that you know your target audience. Creative capital efforts can also build credibility by providing assets that grow confidence across a range of audiences and confirm that the vision has been tested and validated by the market.
Vision alignment: Creative capital assets help visualize an idea and make decisions happen faster. The clarity also creates a sense of urgency for investors to get on board or lose their seat.
For instance, EDM-focused audio brand Sol Republic informed its business model, price points and marketing based on the preferences of its prime audience, college DJs. By leveraging these insights in partner presentations, they were able to demonstrate market validation to secure presales by Apple retail once full product development was complete. This show of confidence by a major player instantly helped the company accelerate growth to over $40 million in sales in the first two years.
Community and brand building: People are attracted to brands that are memorable, purpose-driven and authentic. Creative capital builds these brands, creative assets, social media communities and e-commerce networks to provide early legitimacy and desirability, quickly attracting customers and potential investors.
Seafood company Wildtype needed to overcome lengthy regulatory approvals and an absence of sharable product samples — in this case, sushi-grade salmon — to attract potential investors, brand advocates and top chefs. Creating an approachable, recognizable name, brand and social media system aligned with sustainable values, Wildtype was able to inspire trust and begin building its new community, resulting in emerging market leadership and validating media attention
Protecting IP: By developing and refining IP elements early, in addition to provisional patents, trademarks, copyright, artwork and URLs, creative capital assets save startups time and money and can accelerate time to market.
Mira Labs dove headlong into the augmented reality market with a unique, phone-based, head-mounted system. To move beyond a proof-of-concept mock-up, it needed to rapidly commercialize, including branding, packaging, engineering, manufacturing, and delivery. By employing creative capital and undertaking parallel efforts supporting IP development, investor asset support and product development, they were able to accelerate time to market from 14 months to eight months and jump-start their success.
Financial flexibility: Creative capital partners typically like to co-create with clients and can act more entrepreneurially in their compensation options that might include delayed payments, convertible notes, royalties or reduced fees for equity. Most of these options can help preserve investment funds longer into the process and still allow for flexibility when investors become involved.
As new companies forecast what the future will look like after COVID-19, one thing is for certain: The environment will be more competitive than ever.
In many industries, the pandemic has spurred a data-fueled, visual-first business environment, requiring enhanced video, audio and targeted interactive assets. These are used to offset the absence of traditionally tangible, tactile assets — like samples or trade shows — and give more reason for investors to believe in what you are offering and create market momentum.
That is why attracting partners, customers and influencers from all angles will rely on having the right creative talent to build critical mass quickly. This type of talent is often the secret sauce that can help magnify the opportunity and provide a confident, creative vision. The result will be an unforgettable brand with the potential to create long-term market impact.
Brett Lovelady is a consumer design expert at PA Consulting