Micro-lending for Startups

Dave Cadoff and Robert Scoble are also pondering the question of micro-lending for startups. I think it's clear that there are many types of startups, and many places for startups, that could work through tried-and-true micro-lending schemes.

YCombinator

Guy Kawasaki posted some insights into YCombinator.

De-Risking Business Models

Steve Barch has some interesting suggestions for entrepreneurs. He recently gave a talk at DreamIt Ventures, a Y Combinator-like fund.

TechShop

LifeScience has an interesting video on TechShop, a place where inventors can use shared, expensive equipment. It's a great notion.

IdeaScale

IdeaScale is an interesting take on creating a community around innovation, especially within a company.

According to their home page:

Users visit a company branded IdeaScale portal

They post ideas, suggestions and comments

They may also expand upon other ideas

They vote other ideas up and down

Highly rated and expanded ideas automatically "bubble" to the top

Risk-taking

Quentin has a good post on risk-taking and startups. One hope with StartupCents is that it will be possible to leverage communities of people interested in innovation to allow great ideas to be implemented, even if the people with the ideas are in risk-averse parts of their life.

Micro-financing

The Seattle P-I today had a cover-page article about micro-financing.

From the article: "The concept of microlending -- giving $50 to $300 to entrepreneurs in developing countries -- has been around for more than three decades, but is now starting to heat up. And Seattle, which houses three large microfinancing organizations, is becoming a hub of support. The Bill & Melinda Gates Foundation has also lent clout to the concept by making microfinance grants a part of its Strategic Opportunities division."

This blending of investing and charity is an important aspect behind Startup Cents. My goal is to both introduce a level of visibility and transparency into startup financing, as well as support individuals who are passionate about ideas, products and services, both providing a forum for them to create, discuss, refine and exchange ideas, and a forum to contribute and receive donations.

Group Financing

As I work on making the financial case for Startup Cents effective, I realize that it will have to gain significant traction for it to make a substantial difference using a pure subscription model.

Here is another model that I am considering:

-    A small number of people partner to further one person’s idea, especially if you believe in that idea. The partnership could involve contribution in the form of money and/or work. For example: Say a business needed $100,000 a year to start and get to a level whereby other funding means could be sought – is there a way to get 20 people to contribute $5000 each? This way the risk is shared by a group of 20.
-    Or could it be in the form of a loan? Again risk shared by the group. The loan could be interest free up to a given time frame, but could also have an agreement whereby the loan could be paid back and an additional amount could be given if the targets on future funding are achieved or sales and revenue targets are achieved.
-    I believe an attempt has to be made to prevent share dilution by handing out shares of the company for supporting it, especially at this early stage. Share dilution can prevents several individuals from reaching out for contributions from a group. I would like to see no share dilution but on the other hand I would like to see conditional clauses in the agreement that would say something about if successful in raising second round of money through angels/VC’s the loan has to be paid back with some bonus on top say they get back $6000 each after the end of the year if the business is successful.
-    So what is the motivation of the group to dish out $5000?
-    Maybe your idea could also get such a contribution; when you belong to the group.
-    Benefits – no monthly loan payments
    •    individual can focus on the company for a given time frame
    •    group can be a watchdog for the individual making sure the company’s effort is spent on the important things
    •    and the individual does not see a dilution of their share which increases the comfort level of the VC’s and angel
    •    Grantor and Grantees all share in distributed risk
    •    Group can get some reward for supporting an idea
    •    Group – belief in the idea, charity or a business that complements your own business idea/enterprise. It helps to create the whole solution that Geoffrey Moore attributes to success of companies.

People who provide support at that level should be recognized for their help.

I realize that a lot of details of this model will have to be figured but it seems to be an effective model at this level of inquiry.

My Vision for Implementing It

So sure enough that it the vision – now, what is my vision for implementing it?

There have to be other people out there who have thought of it and done it….
My search on the web provided me with a lot of great organizations that support the endeavor of entrepreneurship – all kinds of help to discuss business ideas – all kinds of seminars – all kinds of consultancies to write business plans. All great and useful tools for starting a business.

But how do I bring true value?

A friend I discussed the idea with mentioned health insurance for groups or people who are working independently on their projects.
I think that idea definitely has merit. I think I definitely need to explore that option.
If I were to set up a company and have subscribing members to the company, can I offer health insurance at a better rate than what is available for individuals? Do people have to be employees in order to get group rates for health insurance? What is Wal-Mart doing? Were they going to offer insurance or just prescription drugs…. I thought I had heard something along that vein.

The basic model for Startup Cents is that people can subscribe to a site, and based on review/selection/voting, a significant share of the subscription goes towards providing grants to startup companies.
But there should be value beside the grants, and that is where the health insurance comes in as a strong candidate.
What about sharing legal or accounting costs, or patent counsel or special support for cross licensing agreements. Can the company facilitate that?
These are the sorts of additional value propositions that the company can and will provide.

My Vision

What if people were to pool resources to create an environment to foster entrepreneurship, be it in art, science or industry?

The notion of company shares embodies that spirit, but it is applicable only to established companies in practice.

How could one translate that model to the funding of a startup?

Let's share ideas about what we can do to finance ventures and make them successful.

Can subscription to a community generate enough money to fund startups? Can it also provide value beyond funding?

What services necessary to start and run a business could be provided more easily if new enterprises were to band together?

The dream I have is to harness the power of multitudes of people in order to create an environment where entrepreneurship knows no bounds. The support, network and infrastructure created by people who believe in ventures can generate a positive environment where each individual lives and breathes entrepreneurship.