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.