Sex startups for years have complained that prudish venture capital firms won’t fund them. Turns out they’re still mad about it.
Just a few weeks ago, entrepreneur Soumyadip Rakshit, who runs a vibrator tech startup, griped to me about his failure to attract investor funding even though he’s had success launching other non-sex startups. Rakshit said that his startup MysteryVibe is already a solid business with opportunity for rapid growth. If that’s the case, why should the salacious nature of his product bar him from getting venture capital?
“Sex sells,” the well-worn mantra goes. Despite the steady cash flow that accompanies many sex businesses, venture capitalists don’t often invest in them because of partnerships and agreements that prevent them from investing in porn or sex-related companies.
There’s also another reason VC’s might not be interested in sex startups.
“Less than 1 percent of businesses get VC money, because less than 1 percent fit the VC profile. It’s not a bad thing,” says investor Marvin Liao.
Startup entrepreneurs are often blinded by the gold rush happening in Silicon Valley. Everyday it seems a new company is racking up a billion-dollar valuation before it’s even begun to deliver on a product. But that’s a distortion, as Liao pointed out.
“I think there’s clearly a market for [sex startups]. They’re just going to have to get alternative funding, or crowdfunding,” he said.
The truth is, with the variety of economic tools on the market, sex startups don’t actually need VC money (though I see the appeal).
To that point, Rakshit has been able to fund MysteryVibe — with angels. Angel investors are great for the sex industry, because they aren’t bound by restrictions the way VC’s are. You can find angel investors on AngelList and other sites that aggregate angel investors, as well as through family and friends.
Other enterprising sex startups have used crowdfunding sites like Indiegogo to test market interest in new products and to raise funding. For an example, just look to Pornhub’s sex-tape-in-space project.
There are also peer-to-peer lending platforms like Lending Club, Funding Circle, or Upstart. They won’t afford you the same amount of money as a VC or an angel, but it’s a good start. You can also use a loan in tandem with money raised through a crowdfunded campaign to help you get started.
These flexible financial tools are only likely to grow. So though it may be an ego blow to be shunned by the VC community, it’s far from a showstopper. Sex startups can rest assured there are funding options available to them too.