Tag Archives: Venture capital

You Say You Want A Revolution?

The JOBS Act – what it really means for the future of Crowdfunding.

So, my assumption here is that you already know about Crowdfunding, either because you have been following my blog or just because. But, maybe everyone on the planet doesn’t know. In case that’s true, let me explain. Crowdfunding is a mechanism that takes advantage of the reach of the Internet to offer opportunities to invest in startup enterprises to anyone with Internet access and a credit card or a PayPal account.

The whole idea is to bring the world of startup investments to ordinary citizens who would like to gamble some of their money on what might become the next Google. In addition, it provides a simple platform for entrepreneurs to post their business plans and raise money to launch their businesses. The JOBS Act is legislation that was passed recently in the U.S to kick-off a startup economy. The Securities and Exchange Commission has 270 days to examine and propose regulations that will support this legislation when it becomes law in February of 2013. The JOBS Act will have thrown 80 years of SEC laws relating to securities under the bus, so the SEC needs this time to temper the Congressional zeal for this passage.

The original driving energy really came from the credit markets that are still broken and would appear set to remain that way for a long time to come, and the regulatory requirements governing most businesses, which usually come later in the lifeline of a startup project. Congress seems to have wanted to find a way to reduce the regulatory oversight while still offering a modicum of risk management by establishing rules that govern the offerings of startup businesses on these Internet platforms. In early discussions, the SEC seems focused on education and not so much on risk warnings. In fact, the JOBS Act turned out to be the result of a conflation of six separate bills, all trying to put forward the same rough objectives.

Congress did what Congress always does, and ended up with a compromise bill that reduces the burden of some of the regulations found in the Sarbanes-Oxley act while still inffusing the new act with some form of  regulatory relief. As is always the case, we never get a pure solution to a simple problem from these guys. It isn’t in their DNA.

The main issues are around education, risk management and the scope of these offerings. Congress tried to reduce the reporting requirements and corral the size of individual and overall investments in a single project, by suggesting some limits for investors and some basic reporting requirements by the businesses. Presumably, the Obama administration and the SEC will take the narrowest possible interpretation of the reporting requirements, so it doesn’t become another source of opaque business practices of the sort that led us into the worst recession since the 1930s. I mean, really sophisticated investors clearly had no idea what they were buying when they purchased the top-trench of a collateralized CDO in the mortgage market, yet they were heavily vetted and qualified as to their level of “sophistication”. We know where that led. So, the SEC argument to focus on the education component of these investments rather than the risk disclosures seems silly, and I hope they see the light before they implement something that failed so miserably on Wall Street only five years ago.

If anything, the financial advice the SEC should require should be along the lines of “Do you understand that most startups fail and that you could lose all of your investment?” And, “It is a really good idea to spread your investment across a broad portfolio of startups, so that if a few fail, you are protected by the one or two that might succeed.”

One of the cool things that has happened in the CrowdFunding space as (I believe) an unintended consequence of the Kickstarter phenomenon, has been this notion of aggregating a built-in customer base WHILE one is in the process of creating product, and the result, which is often squeezing out the failed attempts through the initial market response inherent in the project funding. So, in other words, if your project gets over-subscribed, there is probably a market for what you are trying to produce, and if everyone hates the end-result, you get instant market feedback long before you have committed lots of capital to a failed design.

And, to be clear, Kickstarter is NOT a CrowdFunding platform, even though at first glance it may appear as such. Kickstarter helps aggregate donations for projects. If in return for your donation, you get a coffee mug or an invitation to a film party, then cool. It does not raise money for people to build companies. That indie film is not being produced in a distribution environment. Kickstarter is very careful about which projects it approves. And, it may never choose to participate in the SEC-regulated Crowdfunding space next March. If it ain’t broke, don’t fix it and who wants the SEC breathing down your back?

So, at the end of the day, I think the SEC will err on the side of education vs. risk management, there will be far greater funding restrictions than the JOBS Act intended, the Crowdfunding space will look really different in 24 months than we envision it today, with perhaps far more entertainment related endeavors (games, music, video, films, TV pilots) getting funded in much the same way as the music business became more indie in the last 10 years, and the venture capital community will basically remain unaffected one way or another, as entrepreneurs learn how difficult it is to round up all the devils in all the details.

There is a unique opportunity for the VC community to form an incubation-like support structure to provide infrastructure nourishment for all these startups, but I would be surprised if that happens. It seems more likely to me that the platforms themselves will look to provide these sorts of services as part of their service suite. There is also an opportunity to form a “Startup University” to prepare young entrepreneurs for this new “industry” in much the same way as MIT prepared young software engineering students for the computer technology evolution.

And, lastly, the nascent industry’s attempts at self-governance, while really well-intentioned will likely have little or no real impact on the space. People tend to do what they want.

Whatever forms all of this takes, I think we will have lots of job creation, a new rapid-development technology revolution, and the beginnings of an expansive and exciting world of commerce within the U.S. economy. And, it is really cool!


Startup University.

So, while reading all of the doom and gloom over the mounting student loan debt, it occurred to me that maybe we are on the wrong track entirely.

Maybe we have dug so deeply into this mental trench of “higher education” that no one has stopped to think for decades that there might be another model. I don’t mean two year industrial education or skill programs, where we turn out machinists or bartenders or hotel managers, but an entirely new way to look at education.

What if instead of the $25,500 (average reported student loan debt in 2011) and the estimated $60,000 in expenses, we substituted an entrepreneurial educational program that begins in high school instead? Not for everybody, but for those who think they might have an interesting idea and who aren’t interested in the conventional college student track.

Here’s how one would work and how it might make much more sense than what we have now. Public high schools would implement an elective  program in the sophomore year that would trace the history of entrepreneurship in this country. Maybe it supplants American History for that year. Much more interesting and relevant anyway.

Juniors and seniors would be able to choose an entrepreneurial curriculum instead of American History, Industrial Technology, Math, Language or Art. I mean, have you ever learned anything useful or relevant in history, math, language or art? Courses would concentrate on topics like starting a business 101, investment and funding, marketing, consumer behavior, general accounting, equity, sales, law and economics. Lecturers could be successful entrepreneurs from the world of high technology and consumer marketing. In addition, students would begin lab projects in their junior year, focused on creating the infrastructure for their future businesses. Upon graduation, students could elect to go on to a traditional four-year college or university or opt instead to enter a startup university. They would be encouraged to take their projects with them. Where else does that happen?

The startup university could be a joint venture between our Federal government, which could divert the funds it spends on educational subsidies ($30B), the leading venture capital funds who would invest a small percentage of their new funds, and the top universities in every major city that together, could create an open-ended program that would serve as an incubator for these entrepreneurs and their start-ups. Then, high school graduates who are ready to pursue their dreams of creating their own businesses, while skipping those years of dubious value that they would otherwise spend in college, could get right down to the business of business without any student loan burden or the distractions of college campuses. Because the program would be open-ended, it would self-select winners and losers, just the way the markets do in real life. No degrees. Just startups. Like, I don’t know, one of these guys:

The experience, connections and exposures would be invaluable. The VCs and perhaps the universities would take small seed-round positions in each startup and A round stock would be available to everyone involved, including teachers, mentors, VCs, universities and incubation administrators. Students who fail in their initial attempt would be well-positioned to try again. These kids won’t need jobs.

I am sure this notion is too radical for entrenched educators and politicians to even acknowledge as a possibility, but then what does that say about our educators and politicians? Too risky. Too controversial. Too much investment at stake.  Too radical. Things are fine the way they are. The system is working. Really?

Let’s just say we get this done. Imagine the innovation that would come rolling out of high schools, and a couple of years later. Who invented Instagram? Facebook? Google? Apple? Microsoft? All in their 20’s. All in college. How many jobs? How many countries? How much impact in the world? Facebook would be the third largest country were it a country. 

Think about the simplicity of business models like Pinterest or Instagram. Instagram, a simple mobile app for photo sharing with Twitter-like friends. OK. You can apply 17 filters to enhance the cool-factor of the photo, but so what? A $1B acquisition one year after launch?  15 million subscribers? Pinterest. An online scrapbook for other people’s content? 20 million subscribers? Why would anyone want to go to college?

Upside: Jobs. Education tied directly to student’s goals. No debt. No endless credit, housing or debt bubbles. Banks no longer in control. Innovation. Entrepreneurship. Returning America to the ideals of global leadership, economic growth, individual freedom and the pursuit of wealth and happiness.

Downside: NONE.

10 Tips For Entrepreneurs.

Major magazines and bloggers are always interviewing successful startup CEOs about how they did it, and what advice they have to offer young entrepreneurs who are just starting out.

Just starting out to do what, I wonder. If they are just starting out to build a company from scratch, the successful startup CEO is usually full of tales about following your dream, doing what you love, 80 hour work weeks, living on pizza and diet coke, constantly begging for money, going without salary for months, squeezing friends for sweat equity participation and trying and failing a hundred times to get his vision off the launch pad.

Sounds like so much fun that I am amazed that not everyone in Grad school is licking their chops for an opportunity to do it as well. Though, given the economy and the rapid development and adoption of social network technologies, there are more and more students and young professionals taking the startup leap every day. Deal flow in Silicon Valley has not been bigger since the early days of the dotcom bubble in the late 1990’s and 2000.

So, for the hordes who are taking that leap, what are the best tips that will guide them and be useful to their experience in trying to bring a new company to life? I am asked this question a lot. Having started several companies and taken 3 of them to successful exits, while the 4th is still a work in progress, I think I have learned some pretty simple rules for launching a startup, and particularly in today’s funding reality. These 10 tips are not the usual business-school guidance, but rather the pure, unvarnished reality of what you need to do and be, in order to launch and fund a successful startup:

1) Fierce determination and the ability to see the truth is GOLD. Good entrepreneurs never, ever give up, and they always, always adapt their plan to what works, while rapidly abandoning what doesn’t work, no matter how much of their ego is invested in the outcome. Think Bill Gates. And, nothing ever goes according to plan. Self-delusion is very bad in startups, and it will cause you to squander precious capital chasing great technology for which there is no market. Or, big markets for which you have no useful solution.

2) If you have a vision for something that hasn’t been done yet, stick with it. People don’t know what they don’t know and they don’t want what they haven’t seen. Facebook? Really? Pinterist? iPADs? Instagram? Really?

3) Know who you are. And who you are not. Don’t try to understand how the berries actually grow in Legal, Finance and Compliance. Think Mark Zuckerberg. Hire good lawyers and accountants when you can afford them. Look in the mirror. That’s who you are. Be that.

4) Become a great story-teller. Learn how to tell your story to investors in 15 minutes or less. Unfortunately, you must use PowerPoint. Never read from the slides. Pictures are worth thousands of words. Think about what you’re doing as if you were showing a trailer to a film and you want the audience to come see it. Think about all the trailers you’ve seen and make your pitch as compelling as the best of the best. Top Gun would be a good place to start. If this is your trailer, is your audience going to be interested in watching the film or not? Think Steve Jobs. If you can’t tell a convincing story, you’re done. You don’t get the second date. It’s like speed dating, and you want to get to the real date. That’s what pitching to investors is about today.

5) What is your story about? People (and VCs are actually people) love and, more importantly, remember stories. Make it your story. Personalize it. Make your product or service come from your own experience. Why you needed to bring this to market and why it will change the world. It also needs to solve a really big problem, and one that VCs can relate to even if it doesn’t affect them personally. Your challenge is to bring your story down or up to their level of understanding, empathy and sensitivity. Create the “Ah-Hah” moment for them, so your story sticks in their minds. There is a ton of deal flow, and your story needs to rise above all those other business pans. The great news is that if you can do this well, you will find very few competitors. It is also what will set you apart as a leader.

6) Have a really great team. Not for the VCs, though they always fund the people over the plan, but have a great team for you. Your idea is not the company. Your team is the company. You are not the smartest guy in the room, and you can’t do this without them. You may have the vision or the technology or the marketing savvy to create huge markets, but without all of the other moving parts, you will not bring anything to market. If you are in love with your team, your investors will get it and if you aren’t, they will get that too.

7) Get the money. Many entrepreneurs get fixated on the size of the raise or worse yet, the valuation. You may believe that your amazing play is worth millions pre-money, but the fastest way to kill a deal is to come in with a term sheet that’s says you know nothing about how to valuate a startup. No one else does either by the way, but the key is reasonableness (just like in life) and VCs want to see a reasonable leader put forth a number that makes sense. If your revenue projection is conservative and it says you will be at $5M in 3 years and it will take $2M to get there, a fair pre-money valuation is probably $5M, which means you are willing to give up 40% of your company to get the money to start your dream toward reality. That doesn’t mean you should start at $5M, but it also doesn’t mean you should start at $12M. If you have pitched your deal 40 times and you find one VC willing to invest $1M, modify your plan so that you can make that $1M work.

8) Keep your powder dry. Just because you raised that $2M, doesn’t mean you have to spend it. Be really frugal. Pretend it’s your own money. Constantly ask yourself whether you would spend your own money doing whatever. Enlist other people in your dream. Now that you are a great story-teller, that should be easy. Get them to work for a lot less than they think they can or should. If they won’t, they don’t belong on your team. This is a startup. It isn’t GE.

9) You will make bad decisions. It’s OK. Recognize them when they happen and correct them really fast. Acknowledge your screw-ups to your team. Explain what happened and why you will never do that again. You will all learn.

10) Enjoy every minute of it. Work 80 hour weeks. Live on Pizza and coke. Push yourself beyond your wildest imagination. Lead. This will never happen again. Not this.

Best of luck. You will need all of it you can get.

Jobs Act Signed Today.

A word or three about the Crowdfunding bill.

Finally, the Crowdfunding Bill, aka the JOBS Act, was signed into law by President Barack Obama today.

It will change the way startups do business, most notably by making it legal for them to accept investments from a large number of “unaccredited” investors.

Many analysts estimate that there is more than $50 million in funding waiting on the sidelines that will be invested in over 1000 companies once this bill becomes law. And, like many proponents of the JOBS Bill, they believe it’s a good thing that less wealthy Americans who don’t qualify as accredited investors will now be able to put their money into young businesses and reap the rewards.

But before you go all in on “Isabella and Me” or “Roll Up the Rim”, stop for a minute and think. Can you afford to lose that money? Do you have any idea who is behind “Isabella and Me”, and why you should trust your $500 to those clowns? Are you certain that “Roll Up the Rim” isn’t 3 guys from the Ukraine who just got out of the Vladimir Central Prison and are super-computer savvy.

When you prepare to invest in a start-up. you need to at least take a short course in “I was a Venture Capitalist for a Day.” There are lots of what are called “due diligence” questions you should get answered. iPeopleFINANCE will of course, be able to answer them for you when we launch in September. In the meantime, at least consider the elements of fraud that several annoying, but well-meaning Democrats freaked out about to the extent that they managed to delay the bill and then fill it with regulatory traps which they believe will mitigate fraud.

So, just for a little perspective, the Crowdfunder Infographic below claims that of the more than $430 million dollars invested in Kickstarter, CrowdCube and Prosper, there have been zero cases of fraud. While we don’t know of any official fraud cases brought against Kickstarter backers by law enforcement, we would like to take issue with that number.

Adrianne Jeffries at Betabeat has reported on two separate Kickstarter projects that drew allegations of fraud. Backers put $27,000 into the Tech-Sync Power System before the project was mysteriously cancelled after failing to explain how it could deliver on its promise.

Perhaps more striking is the case of Vere Sandals. The project was successfully funded more than one year ago, on March, 1 2011, raising $56,618 from 1,091 backers. Just five hours ago, frustrated backers were still leaving comments on the project page asking why they still had not received their sandals. More infuriating to those who pledged money is that Vere Sandals has begun retail operations, selling shoes directly to merchants, without first completing its commitment to its Kickstarter backers.

“Over a year ago I backed a new company — Vere Sandal Co. — that wanted to get in business. Never had I anticipated that using the backer’s money to finance retail business would be the result,” wrote backer Rajesh Patel. 

“That they were shipping to retailers even as they were making excuses to backers just makes a bad situation worse. Personally I don’t expect I’ll be seeing the sandals, getting my money back or even hearing from these folks. They have made clear how they do things and it is merely a case of ‘backer beware’,” wrote Dan Cohen.

“How can you ship to retailers before the people who backed you over a year ago? This company is a total scam and I want my investment back!” wrote Adam Browning.

There was never an official contract between the backers and Vere Sandals. As Kickstarter’s terms of service make clear, “Kickstarter is not liable for any damages or loss incurred related to rewards or any other use of the Service. All dealings are solely between and among Users. Kickstarter is under no obligation to become involved in disputes between any Users, or between Users and any third party.” Ah, but investors do have complete power over their investments. All they have to do is make their investments conditional upon a simple contract that guarantees a return, should a variety of conditions ensue. Kickstarter should really be doing this as part of their 7% fee. But, they don’t. Today.

My favorite stat is “If Americans shifted 1% of the $30 Trillion they hold in long-term investments, to small-businesses instead, it would amount to more than ten times the venture capital invested in all of 2011.” Amy Cortese, Author of Locavesting. 

Hopefully, as this legislation becomes law and as more sophisticated crowdfunding platforms are launched into the space, they will assure they will be responsible stewards for investors’ money, advise investors as to the due diligence already undertaken before the project is launched, and the result will be the huge boom in small business, wealth and jobs creation that the law portends. iPeopleFINANCE will do all of this and more. Stay tuned.

The Crowdfunding Market Nearly Quadrupled in a Year.

$123 Million Year-over-year, Report Says

Earlier last week I posted with enthusiasm that the Senate passed a version of the House bill HR2930, but that we still had some work to do to get it passed. Since then, I have seen some pretty remarkable numbers related to the growth of Crowdfunding, and it isn’t even “legal” yet.

A report was published recently by the Daily Crowdsource that was based on an evaluation of eight reward-based crowdfunding platforms (where a donor receives a reward of value in exchange for a cash contribution) and six investment-based platforms (where investors receive equity or interest on their investment). All platforms evaluated in the latter category were based outside of the US, where they are in fact legal today. The rewards-based platforms evaluated are all US companies and are legal, as long as they don’t offer investors an equity or interest based position in the outcome, and include the popular fundraisers Kickstarter, RocketHub, and WeFund.

In 2011, crowdfunded businesses and projects raised $102 million on rewards-based platforms, including $85.4 million raised by projects that reached their total funding goal. Over 2010 figures, “this signifies a 266 percent increase in the total amount donated and a 263 percent increase in the amount donated to projects that received their full funding,” according to the authors.

They attribute the explosion to the “increase in the number of projects that are being posted online.” More than 31,000 projects sought crowdfunded donations in 2011, up from just under 12,000 in 2010.  The Daily Crowdsource reports that not only are more projects being launched, but the number of projects achieving their full funding goal is also increasing, “indicating the market is becoming more efficient at allocating resources.” The Daily Crowdsource says its research on the nascent crowdfunding industry was conducted over three years, and is based on data collection and interviews with leadership at all 14 crowdfunding platforms evaluated.

Investment-based crowdfunded projects raised a collective $20.5 million in 2011 – five times more than was raised the previous year. And, these aren’t projects that would have ever seen the light of day in front of traditional venture investors. These are projects like Duality of Bell, a short film about Bell, a teenage girl struggling to preserve her youthful innocence with some new-found whatevers, or Build a Greener Block (BABG), a community of Las Vegans looking to take over an empty block in downtown Las Vegas on April 28th and 29th, and for this one weekend they’re transforming the block into a living community, where instead of empty stores there will be a restaurant offering healthy food, a boutique, a café, a flower shop.  Well, you get the idea.

Can you imagine what this space will look like once Congress get’s this bill approved? How about Pandora, which was turned down 300 times by some super-smart Venture Capitalists? Or, Skype. Turned down 40 times before getting funded and going on to a massive exit.

Or, better yet, a little company in Mountain View, that in the early months of 1999, its founders Sergey and Larry, still students at Stanford University at the time, wanted to sell the project they named Google and focus on education. They approached George Bell, the CEO of Excite for a $1 Million buyout. This was rejected by George. There were a number of negotiations that almost led to a $750,000 buyout offer. This was rejected by Sergey and Larry and, according to George Bell (circa 1999) they asked for an investment instead. George said that he rejected the counter offers and let the idea drop. About five months and 22 venture presentations later, Kleiner Perkins Caufield & Byers and Sequoia Capital invested $25 million in Google, and the rest is as they say, history.

I don’t know about you all, but I can hardly wait to get my hands on the next Google, or Facebook, and I am convinced that our buddies in Congress are going to pave the way to make that happen. Of course (shameless plug) iPeopleFINANCE will be the platform on which the next Facebook will promote its first raise, and get funded. A whole new, on-line Silicon Valley for start-ups, funding innovation and creating real jobs. Truly exciting!  

The Simple Way to Fix the Banks and Prevent Another Meltdown.

To paraphrase Michael Lewis, the former Salomon Bros. bond trader and author of Boomerang, Moneyball and The Big Short, break ’em up, make them small and don’t allow gamblers to give advice to investors.

Lewis famously points out in a Slate interview that future generations will look back at the crash of 2008, and wonder, “How did you not notice 24-year-olds were being paid $2 million a year who clearly didn’t know anything?” And, I would add “How did you expect to put people in a room with a machine that spun junk into gold and not expect them to use it?”

The amazing thing to me is, with all of the hand-wringing and posturing by our politicians following the crash and the subsequent bail-out, not one thing has changed. Dodd-Frank has no teeth in the areas that matter, and has yet to be implemented. I think it was actually passed way back in 2011. Glass-Steagall remains repealed, and there is no legislation in Congress which addresses any of the issues around the four provisions of the Banking Act of 1933 that limited commercial bank securities activities and affiliations between commercial banks and securities firms.

So, as best as I can tell, there is nothing to prevent Goldman or Citi or the rest from creating the equivalent of a credit default swap, taking a short position on it with its own money and peddling it to others, all the while knowing that it is made of junk. When the new credit default swap crashes and burns, its birth mother makes out like the bandits they are.

That is exactly what happened in the run-up to 2008, and when it all caught fire, we know who was left holding the bag. And, I don’t know how you feel, but I don’t want to go there again.

The simple fix is to break up the banks, making sure that none of them are large enough to hold anyone hostage again and to assure that the (Charles Schwab-like) investment advice is separated from the (Lehman Brothers-like) gamblers on the investment capital side. Make the banks go back to a wealth advisory role and make the gamblers become hedge funds. And, don’t ever hire any MBA’s under 30!

This, by the way, is the same Congress that is sitting on one of the potentially most important pieces of legislation introduced by this Congress, the Entrepreneur Access to Capital bill that seems completely stalled in the Senate. A bill that could lead to actual job growth, enormous capital  formation through a new and exciting asset class, and some rocket fuel for an economy that is already sagging (orders for durable goods fell in January by the most in three years and  the S&P/Case-Shiller index of property values in 20 cities fell 4 percent from a year earlier, reports showed yesterday).

Why is the Senate sitting on it? Because the same people who brought you the Bernie Madoff Ponzi scheme (which somehow managed to escape SEC attention even after four reviews), are concerned about protecting investors from fraud because, “There are lots of snake-oil salesmen on the Internet.” Really? You want snake-oil? Go down to lower Manhattan.

This fraud excuse is bogus for reasons other that that, however.

First, every crowdfunding site, including iSellerFINANCE, will have thoroughly vetted each offering before it gets posted to their platform, assuring that the same level of due diligence has been performed as would have been the case if a traditional Venture Capital firm had studied the deal.

Second, the various forms of the bill now in the Senate, limit (or cap) the investment at a maximum of $10,000 or 10% of an investor’s annual income. So, someone may lose $10,000. That’s a Mitt Romney bet. Not a serious amount of money for average investors. And, the upside is enormous. $10,000 invested in Amazon, Apple and Google just 8 years ago would be worth a jaw-dropping $402,452 today.

Third, the fraud excuse is really driven by the lobbyists who are working hard on behalf of, guess who? The investment banking community, who will get cut out of whatever this action might turn out to be. Surprise, surprise! And then there is the emotional reason. Somehow, these same politicians are way OK with using crowdfunding for their own campaigns, and yet there is no mechanism in place to protect investors from what happens to them when these guys get in office.



Politicians go out to thousands of supporters and say, “Hey give me as much money as you can afford (capped, of course).  Collectively it will add up to something substantive so that I can talk about my goals, build my team, market my message and get elected (or re-elected).”  Entrepreneurs do the same thing (take an idea, make a proof of concept, build a company, and hire employees to market and grow) but only with accredited investors (aka millionaires).  Here’s the ironic part.  It is legal for politicians to go to the masses and advertise, but illegal (under SEC regs) for entrepreneurs to do the same thing. And the bill, in its current form still doesn’t allow “advertising” of these crowdfunding deals. How that gets worked out is anyone’s guess.

When it comes to crowdfunding, entrepreneurs are held to a different standard than politicians. Why are there rules on how much money one has to make in order to give to an entrepreneur but there are none when it comes to politicians?  100% of Americans can give to politicians of their choice but only 5% of the wealthiest Americans can invest in entrepreneurs to create jobs.  Really? The rationale, according to the opponents to Crowdfund Investing is that Americans aren’t sophisticated enough to understand the risks inherent in investing in startups.

If they don’t think people are sophisticated enough to decide how to invest a few thousand dollars in a venture, why do they think these same people are smart enough to choose the right candidates?   Why do we allow people the freedom to use their money as they wish when it comes to crowdfunding politicians, but we don’t give them the same freedom to use their money as they wish when it comes to investing in startups and entrepreneurs?  Are we to assume that there’s no fraud in politics?  Should the supporters of Representative Weiner or presidential candidate Herman Cain get refunds?

This election season, over half a billion dollars will go to fund the campaigns of many a politician.


Imagine the impact we could have on our economy if that amount of money went into starting new businesses?  Businesses that create jobs; jobs that provide income; income which consumers spend with increased confidence.  Increased consumer spending further stimulates the economy. This bill will get us out of this recession. It’s time to let your Senator know how you feel. Let’s get this done!


Crowdfunding, The Great Disruptor!

Crowdfunding as a disruptor is growing exponentially, and there are suddenly 14 different platforms that can help raise money for everything from cultural, art and music projects to social enterprises, nonprofits, volunteer groups, sustainable businesses, community and food organizations. I am surprised that public schools haven’t climbed on board to fund things like after-school sports programs, music and art programs and all of the stuff that has been hacked off the table in public education budgets. Imagine, your $10 could get you a ball cap, paperweight or team jersey commemorating your contribution to keeping the your local high school tennis program going. 

An example of disruption through Crowdfunding would be Sunday’s well-attended Progressive Opportunities conference in Berkeley, CA. The principle discussion centered around the roles of food and energy as a focal point for reshaping our world. “If there’s anywhere people have really gotten the importance of local change, it’s the food movement,” said Elizabeth Ü, one of the speakers at the event (which was produced by the East Bay Express). The speakers at Progressive Opportunities were level-headed pragmatists, with attainable goals and interesting stories. If anyone is going to create an alternate food economy, it’s probably these people.


At the conference, coordinator Al Weinrub delivered an overview of what he calls “decentralized energy systems.” To elaborate: “You could think about it as trying to move toward net-zero communities, where you essentially can generate as much energy locally as you need locally, so that you don’t have to buy a lot of energy from the grid,” he said. “The idea is that it’s a more sustainable approach to energy use, and also allows for a lot of economic development and jobs.”

In the end, Weinrub explained, a system emerges where wealth is held within a community rather than extracted by outside forces. Some of that wealth can take the form of investments in infrastructure, jobs, and businesses aimed at harvesting natural resources like solar, wind, geothermal, biomass, and biogas. Thus spent, the money then trickles through the community rather than leaving on a utility bill. It may seem a utopian vision, but Weinrub says it’s already technologically available. He also insists that such a transformation is more of a necessity than most realize. “We’re going to have to rethink how people work and live, and energy is a crucial part of that,” he said. “So we have to think about redesigning our energy systems in a serious way.”

The concept of growing new economies through the sustainable use of local resources is the focus of the Hoop Fund, a San Francisco-based crowd-funding platform that offers microfinance loans to small farmers and artisans. Similar to the micro-lending platform Kiva, individuals make loans as small as $25 and investments are paid back in small, gradual increments. In lieu of interest, Hoop Fund lenders earn discounted products from the entrepreneurs, fostering a strong sense of connection between the involved parties.

I sat in on several of the day’s workshops, but Crowdfunding for Local Food Economies was particularly interesting. The topic was nominally crowdfunding, but it encompassed a larger exploration of different ways food entrepreneurs (farmers, restaurants, artisans, etc.) can secure capital.

Lawyer Jenny Kassan, who’s CEO of Cutting Edge Capital, advises entrepreneurs on the distinctions between different types of investments. She also helps navigate the tricky SEC restrictions aspiring food businesses have to contend with. “It’s ridiculous that we need to hire lawyers to solicit investments from our own community,” Kassan lamented. Her presentation reviewed funding models like Kiva and Kickstarter that avoid securities regulation, as well as co-ops like Mandela Foods and Arizmendi Bakery. Hopefully, all of this changes soon when the Senate actually does something useful for this economy and approves an “Entrepreneur’s Access to Capital” bill.

Kassan also showcased Gather, the critically acclaimed vegetarian restaurant that certainly needs no financial assistance at this point. But several years ago, when owner Ari Derfel was trying to raise $400,000 to launch his business, he used a securities exemption that allows funding from up to 35 small, unaccredited sources. Not only did these non-bank investors give financial assistance, they also created a community support network that helped fill tables during Gather’s infancy.

Elizabeth Ü is the young firebrand director of Finance for Food, and is currently working on a book of the same name. She started with strong words of caution for food businesses in need of capital. “When you are offered money, I can’t stress enough that you should know exactly what strings are attached,” she said. “You don’t want to be forced to sell out your values later” (see Niman Ranch, Ben and Jerry’s, etc.). Ü had many suggestions for funding sources, including small “friends and family” loans and peer-to-peer lending, but she warned against venture capital for most small food startups.

The last speaker was Arno Hesse, co-founder of Slow Money and a trailblazer in the field of sustainable investment. Hesse just launched a crowdfunding platform for food businesses called Credibles. The tagline is “If you eat, you’re an investor” and it comes with a simple premise: Investments are returned in edible credits rather than cash. Some of Credible’s first entrepreneurs are Berkeley-based Gelateria Naia and Amber and Son Farm, a small chicken farm in Sebastopol. Investors in these companies will get their dividends in gelato bars and pasture-raised eggs.

All four speakers showed not only that alternative food and energy economies are within reach, but that they are well on their way.

So, the following is a list of crowdfunding websites that can help social enterprises, sustainable businesses, public shcools or nonprofit organizations get what they need to launch or sustain their programs. Check them out:


33 Needs: Connecting microinvestors & social entrepreneurs

33needs is a recent crowdfunding startup that connects microinvestors with social entrepreneurs who have big ideas in categories such as sustainable food, health, education and the environment. Investors can earn a percentage of revenue in exchange for their support.


AppBackr: Offset app development costs

A specialty crowdfunding site that may be useful to some social enterprises, AppBackr allows Apple developers to get funding upfront for iPhone, iPod and iPad apps in the concept stage by selling the app wholesale to backers, who receive a percentage of the profits for the apps they have purchased. Many app buyers also assist developers with marketing and promoting their apps to ensure that their investment is fully recouped. With a growing number of social enterprises tapping into the explosive apps market to raise awareness and sell products or services, AppBackr may be a useful tool to help offset app development costs, and even gain some extra promotional help.


Buzzbnk: Supporting a wide range of fields

Buzzbnk is a crowdfunding platform especially for social enterprises that allow funders to donate either money or time to support social enterprises working in a wide variety of fields. Though based in the UK, it is open to social ventures operating anywhere in the world. Social enterprises must submit their project proposal to Buzzbnk and the Buzzbnk team will work with the social enterprise to help develop appropriate fundraising targets and benefits or rewards to offer funders.


CauseVox: Fundraising pages for nonprofits

CauseVox offers nonprofit organizations a fully customizable fundraising page that makes collecting money from supporters easy. Supporters can also create their own personalized fundraising pages. Social media integration makes it easy to embed YouTube videos, Flickr slideshows and more.

Kickstarter: Supporting a wealth of creative projects

One of the best-known crowdfunding websites is Kickstarter, which rose to fame after the open source Facebook alternative Diaspora raised more than $200,000 on the site. Kickstarter funds creative projects such as independent films and music albums, books, software, citizen journalism, theatrical productions and more. Project creators are required to offer rewards to donors, such as bonus musical tracks, autographed books, signed prints, free performance tickets or something similar. Although Kickstarter cannot be used to fund social enterprise start-ups, it can be a great source of funding for social enterprises and nonprofits hoping to use creative projects to raise awareness of their cause, as well as for social-minded creative enterprises such as nonprofit theater companies and independent music producers. Other great crowdfunding sites focusing on creative projects include IndieGoGoRocketHub, UK-based Crowdfunder and Australian-based Pozible.


ChipIn: Embed a widget, raise $

ChipIn is a simple widget that can be posted on blogs, websites and many social media profiles. It allows individuals, private groups, non-profits and others to raise money easily online.


Crowdcube: Equity-based investment community

UK-based Crowdcube bills itself as “the world’s first equity-based crowdfunding community dedicated to business investment.” In exchange for microinvestments of as little as £10, investors can fund worthy enterprises and in exchange gain a share of direct equity in the business. Crowdcube is currently available only to UK-based investors and entrepreneurs who have or can start a UK Limited Company, but hopes to expand to other regions in the future.


Give.fm: Create your own campaign

Give.fm allows nonprofits and individuals to set up a campaign to raise money for causes ranging from local soccer teams to international efforts to fight poverty, hunger, disease, environmental degradation and more. The site works by allowing donors to set up recurring microdonations of as little as 10 cents per day.


Peerbackers: Raise funds from your peers

Peerbackers offers entrepreneurs and nonprofits of all types the opportunity to raise funding for their idea from their friends, family and peers. Rather than receive financial returns or equity, backers receive rewards such as free or discounted versions of the products or services offered by the company.

First Giving

FirstGiving: Raise funds for your favorite cause

FirstGiving has helped more than 8,000 nonprofit organizations connect with more than 13 million donors and raise more than $1 billion to date, it reports. The site allows nonprofit supporters to create their own fundraising page to raise money for the cause of their choice.

Razoo: Simple, secure tools to raise funds

Razoo is a crowdfunding platform for nonprofits and charities that allows individuals, organizations, corporations and foundations to set up a fundraising page to raise money for their own cause or their other cause of choice. Razoo also allows team campaigns.


Sponsume: Free fundraising platform

Sponsume is a crowdfunding startup, launched in 2010, that allows both creative projects and social enterprises to raise funding on the site. Sponsume is currently free to use, but does plan to start charging fees in the future.


Spot.us: Funding citizen journalism

Spot.us is a one-of-a-kind crowdfunding platform that supports citizen journalists by funding their investigations of specific topics. Spot.us can be a very useful tool for organizations seeking to raise awareness through hard-hitting investigative journalism, community reporting or similar means.


Start Some Good: New kid on the block

Start Some Good is a new crowdfunding startup that launched in February with the goal of connecting social entrepreneurs with crowdfunded venture capital. Start Some Good allows both for-profit and nonprofit social enterprises to post fundraising campaigns to the site. Team members will help review the campaign’s goals and rewards to ensure they’re a good match for Start Some Good’s philosophy.

Crowdfunding Tips And Best Practices.

I have raised over $32 million in Venture Capital during the course of my career, so I have learned something about creating the cognitive and affective trust required to gain investor interest so that they become excited about a deal and then commit to it.  Now that we are about to launch what we hope will be the first CrowdFunding site in the U.S., I have been thinking about how entrepreneurs can transform the dynamics of traditional face-to-face investing to virtual web-based investing, while still preserving both cognitive trust (rational economic reasons to believe) and affective trust (emotional rationalization of data to market behavior). Because, without both elements, your plan will not get funded.

In the “real” world, my affective trust has been created as the result of my track record in business and my past relationships with investors. My cognitive trust is created based on the elements of a sound business and marketing plan combined with a believable solution to a real world problem that has breadth and reach, and can be clearly monetized.

But, what if you haven’t successfully raised Venture Capital before and you don’t have a network of people who have a reason to believe in you? This would probably be the reason you are relying on Crowdfunding to get your raise done. One of the growing misconceptions about Crowdfunding is that all you have to do is throw up a business plan and a whole bunch of people will throw money at you. Wrong. So, how do you create this affective trust element that is so important to the raise?

You withdraw a bunch of social capital from your account and seed your deal with it to start. Where is that social capital account? Facebook, LinkedIn, Twitter, Klout, MySpace, Pinterest, and in every other social media platform in which you have invested. If you haven’t done this yet and you still want to start a business, then my advice is to hold off on posting a funding proposal and begin building a network of friends on these social media platforms. If you say, “These social media platforms are a waste of time, and nobody I am interested in having a relationship with wastes any time on these stupid sites,” here are a few interesting statistics that may wake you from your social networking stupor (sorry):

  • Social networking now accounts for 39% of all time spent online in the US.
  • A total of 294 million people age 13 and older in the U.S. used mobile devices in December 2011.
  • Twitter processed more than three billion tweets in December 2011 and averages almost 100 million tweets per day.
  • Over 45% of U.S. internet page views occurred at one of the top social networking sites in December 2011, up from 13.8% in 2009.
  • Australia has some of the highest social media usage in the world. In usage of Facebook Australia ranks highest, with over 17 million users spending almost 9 hours per month on the site.
  • The number of social media users age 65 and older grew 190 percent throughout 2011, so that two in four people in that age group are now part of a social networking site.
  • As of June 2011 Facebook has 750 Million users.
  • Facebook tops Google for weekly traffic in the U.S.
  • Social Media has overtaken pornography as the #1 activity on the web.
  • iPod application downloads hit 1 billion in 9 months.
  • If Facebook were a country it would be the world’s 3rd largest.
  • U.S. Department of Education study revealed that online students out performed those receiving face-to-face instruction.
  • YouTube is the 2nd largest search engine in the world.
  • In four minutes and 26 seconds 100+ hours of video will be uploaded to YouTube.
So, now that you have seen the light, you may begin setting up your accounts and inviting your (real life) friends to become your virtual, social network friends, as well.
Once you have a few (real life) friends, you can begin inviting their friends to join you and once they start to do that, you can begin inviting their friends to join you. And, before you know it you will have a thousand “friends”, only three of which you actually “know”. If you have read this far and haven’t skipped down to the bottom of this post, I will assume you are what I call a random dope who actually doesn’t know any of this stuff because you have spent most of your young adult life in your Daddy’s Pizza joint actually working for a living instead of frittering away all of your spare time on the web.
Once you get the thousand friends in place on Facebook or your social networking platform of choice, you can begin implementing the “third man” strategy for crowdfunding. Aha, you say “what is that?”. Well, the “third man” catalyst is a little known behavioral psychokinetic that refers to the crowd behavior that ignites when a “third man” joins a “second man” in a given behavior within a crowd. Here is a video demonstrating this whack point:


So, the key at this point is to have amassed this crowd of “friends” that are somehow connected to you, largely through others whom you have never met but who know or believe that you are “friends” with someone they “know” and therefore you have earned a certain degree of affective trust. Only YOU realize how artificial this trust really is, but you ignore that and forge ahead, because you now have a thousand “friends” who largely have no idea how they know you, but are willing to believe that they know someone who has “vouched” for you because they have ended up in your “friends” bucket. This is enough for you to start floating your business plan. iSellerFINANCE has a platform extension on which you can post a funding proposal, allowing you 90 days to reach your goal.

The next thing you need to do is to start with your original two friends and present your business plan.  All that these two people need to do is convince themselves that there is a basis for cognitive trust based on the business plan, and that they are confident that sharing your plan with their “friends” will result in an accord among this crowd that your idea is a good one, so that in turn these people will share your plan with their “friends”. They already have that affective trust because they like you. The third guy that jumps in will have the same effect as the goof-ball in the video above. The crowd will be on its way.
Short case study from the real world: 2003. San Francisco. A start-up whose name I won’t reveal was preparing to raise $100 million in VC. Word “got out”. The management team had success in prior companies with exits entirely through acquisition – zero IPO’s (the big money deals). One of my investors called me ($800 million fund) and begged me to introduce him to the founder/CEO whom I happened to know (he and I were in the same space and had become friends). I did. He was in line with 23 other venture firms. The raise happened in 24 hours with 7 VCs participating. My guy lost out. They were over-subscribed and raised $190 million. Why? Because, a large group of  like minded people became aroused by an idea (cognitive trust) and a management team who were being lusted after by every VC in the Valley (affective trust) and almost killed each other to be on the ‘A’  list for a raise that ended up yielding a very small post-money valuation for a deal that hadn’t even gotten out of the gate. Everybody want’s to be on that train. (Ummmm, not that it matters, but that company burned through the $190 million and is out of business today.)
The point is you are now positioned to launch your funding proposal. Here’s what you do:

1. Offer an opportunity, don’t ask for a hand out.

Reach out to your first two friends. Be very confident about the investment opportunity that you are offering – if you believe that it will be a big success, others will believe as well. If you can’t be confident, forget it. Whatever it is – you need to own the space! Be the space! You .. are .. the .. guy !!!

Then, reach out to all 1,000 “friends” with a pre-funding announcement – something like, “Hey. We are getting ready to launch RocketFuel, 3.0, the coolest sales productivity tool on the planet. I will be circulating the business plan to a select few in the next few days. We are keeping the Series ‘A’ round open for two weeks from today. This will be an opportunity for some of you to be in on the ground floor of a sales tool that will revolutionize the sales productivity space. Watch for it.”

2. Tell your personal and business story.

You are inviting people whom you know to invest, and they want to hear your authentic, personal voice shine through and feel your passion; even your “friend” friends. Remember, your company’s biggest asset at this point is you! Keep that in mind as you tell the story of your business and how it will grow. Make your marketing plan sing with passion (the key in the process of creating affective trust). Study the Facebook pages of all of your friends and ask yourself what would make them get excited about your plan. Then, speak to that.

Make your business plan resonate with somber tones around your modest estimates of growth (the key in assuring cognitive trust). Everyone wants to be assured that they are not about to do something stupid (like throw $500 away on your ridiculous business plan), so you have to assure them that you have carefully thought through all of the alligators in the swamp and are ready for them. If you have been through the wars before and have scars to prove it, show those scars and explain how you plan to avoid getting more. People want to know you have learned lessons, and they want to know that you understand what those lessons are.

3. Include a video.

Since there are only two people who actually know you, your social media campaign should invite people into your psyche. Videos are a great way to do that. iSellerFINANCE enables video sharing (excuse shameless plug). People want to see your shining face speaking to them directly. That way, they can attach the vague connection they think they have with you through Facebook to something more tangible in their cellar of affective trust. And, by all means be cool. Whatever that means to you. What you want is for your audience to say to themselves, “Yeah, Jim’s friend Paul is a cool guy. Great beret. Cool tee-shirt. Obama 2012. Check out his dreads.”   These days, it doesn’t take much equipment to record a high-quality video of you and your team telling your story. But, always be authentic. You will be far better off if you rolled out of bed and fired up your camera while telling the truth, than if you rehearsed for days, and then dressed for success and told a lie on a carefully staged production set.

4. Get all of the co-founders/officers of your business involved.

If you have multiple co-founders or Board members, create accounts for each of them tied to your iSellerFINANCE raise and ask them each to invite their networks to invest as well. This may seem like a no-brainer, but you might be surprised at how many missed opportunities entrepreneurs leave on the table because it hadn’t occurred to them that their humble and media-shy accountant who was going to be their CFO turned out to actually be connected to 750 Facebook friends. Mostly because he has three teenage daughters and their school friends’ parents all want to be hip and have FB pages.  But, since he doesn’t like “imposing” in other people’s space (because he is after all, an accountant), he doesn’t mention it and you don’t ask. Well, ASK! Favorite accountant joke: You can tell an extroverted accountant because he is the one who is staring at your shoes instead of his own. BWAHAHAHAHA.

5. Follow-up your 1,000 friends pre-funding announcement with the raise details.

You have sent your plan to your two real friends and have asked them to reach out to their networks. Now, it is time to announce to your 1,000 “friends” that you have received initial interest from your two real friends and that the fundraising is underway. Hopefully, your two real friends will have committed some money, so your statement of interest is true. Even if it isn’t, you can say that the funding is building momentum and that 1,000 of your “friends” are looking at the plan. Point out the term sheet details and explain what a $100 investment will mean in terms of percentage ownership.

Set a realistic minimum. You want to set a minimum that is high enough to reach your fundraising goal with the number of investors that you reasonably believe you can attract. Investors are also motivated by being able to contribute a meaningful percentage of the goal. A default minimum is $25. This is a number that anyone can afford, but it contains a sense of seriousness in that it is not on the order of a political campaign donation.  $100 may blow a lot of people out of the market. You need to consider your audience demographics. If your product or service will appeal to younger, college kids, then your investors are probably in the same demographic. Make it cheap. If on the other hand, you are creating a web site for an Angie’s List for Cosmetic Surgeons, you might want to set the minimum at $1,000. Stress that the offering will only be open for a few days.

How much should you ask for? Ha! No one ever knows this answer, so if you don’t, don’t feel bad. There is no answer. Make some assumptions about price and market and uptake over time, and then sit down and do a pro-forma. Your investors will want to know when they can expect you to get to break-even and they would like that event to coincide with the moment where some of their cash is still in your bank account.

So, you will need to create a pro-forma P&L that shows how you begin to generate profitable revenue before you run out of cash. . If you believe in your idea, you have vetted the market, you fully understand how your solution solves a broad problem, and it can be easily monetized, then you should have no problem convincing investors that your pro-forma makes sense.

Ask for an amount of money that fits with your product build and your audience demographics. Most products that live on the web cost little in the way of engineering, and most of the money you will raise will be used for marketing. Talk to your channels and estimate the marketing burn and ask for twice that amount. If your product lives in  brick and mortar, you need to estimate the distribution signature and ask for twice that amount. The smaller the ASP (the average sales price), the less you will need to raise. The bigger the ASP, the more you will need to raise. Conservative and older demographics usually cost more to sell to, while younger and hipper demographics are generally consuming lower cost product. If you think you are appealing to college students, try a raise in the $50,000 neighborhood. If your appeal is to golfers for example, your raise could easily be in the high sixes. You will rarely raise what you actually need, so look at this raise as a first step. You can always come back for more.

6. Leverage early success.

Let’s assume that some of your closest community members are teed up to invest in the first week of your raise.  Or, even one. This is the holy grail, and it will create the weird crowd-momentum that will compel others to get involved. Your 90 days are ticking, so you should ask your early investors to share testimonials about you and the business and why they invested, and distribute these testimonials in follow-up emails to other potential investors and on the iSellerFINANCE site, and Facebook, and on all of your other social media platforms. The key is to begin leveraging your early success and broadcasting that everywhere you can. What you are looking for is that magic moment when people begin begging you to let them in.

7. Consistent and constant follow-up.

After sending out an invitation to invest, continue to stay in touch with investors with updates throughout the 90 days of your raise. Some of the obvious points about which you can communicate are the fund-raising status, the number of investors that are participating, and one-time, major events like an investor ponying up $10,000, and the story behind why she did it.

Most start-up business plans morph during any given 90 day period (sorry, and maybe scary, but true), so this is a good opportunity to share your new, revised vision for your website. Think about it. Amazon thought they were gong to be an online bookseller. Google was simply a search engine. Facebook was a guide to getting laid in one college. eBay was an online flea market. What are they today? Update and re-publish your business plan.

Talk about new markets for your plan. Use other companys’ success stories as metaphors for your own projected success. You know, ABC Lemonade Stand just morphed into ABC Lemonade Mobile and is using Twitter to let their fans know where they will be this afternoon at 3 pm. And, this is just like your plan to roll your BigZapatoTaco Truck out to east L.A. using Pinterest and Facebook. You get it, right?

8. Get an attorney.

The best way to do this is to reach out to friends and family and find an attorney who knows something about private placement or who can refer you to someone who does. When you finalize your raise, you will need someone to guide you through the maze of securities law and capitalization while assisting you to close your round. Most of these law firms will do this for you in exchange for equity. And, if you don’t have friends that can refer someone, just go to the Valley and start with the top law firms. All of this is templated law and their paralegals do the actual work, so this costs them essentially nothing. You can afford the equity, so it is a win-win. No, I am not a lawyer and we are not a shill for law firms. But, you would be insane to try to do this yourself.

9. Assign someone on your team to Investor Relations and Communications and always be transparent.

The likelihood is that you will need a second round of funding. Your most fertile second round investors are your first round investors. When you come back to them when it is double-down time, you want them to be right there with you on this terrifically entertaining ride. That means you have to have someone on your team in constant communication with these people. They are your partners. Even the 73 people who ponied up $25. They need to know everything that is happening along the way to you becoming the next Facebook.

The more forthright and transparent you are, the more empathy they will have. And, when it comes time to ask them for more, you really want an empathetic audience. You want them to have been along for the ride right alongside you, experiencing all of the joys and wins as well as the disappointments and tragedies. Do not ignore them. Ever.

10. Don’t give up.

When you see that you are not going to successfully raise that $200,000 you need to launch your Doggy-Day-Care service, the takeaway may well be that your plan sucked. Or, your market is already saturated with doggy day care services and your twist on the play was not compelling … to anyone. It’s cool. Pick up your marbles and think about where you went wrong.

One of the exciting things about Crowdfunding from our point of view, is that it has the capacity to thoroughly vet a business plan by having a hoard of people ripping it apart in a 30-60 day period. No polite conversations with venture capitalists thanking you for presenting and considering them, but your plan, while brilliant, is not quite the right fit for them at this time. No. Instead, you get the deafening silence of zero response to your funding proposal, or the roar of the crowd screaming about your galactically stupid business plan.

Maybe the crowd is too dense to get you. Maybe you need a different approach. Maybe you need to re-think your go-to-market, or your brand or your geography or your timing. The point is that Crowdfunding gives you an immediate and uncensored critical review.

And that, as a true entrepreneur, is what you should really want. Now, get out there and knock ’em dead.

VCs Show Healthy Appetite For Peer-to-Peer Companies.


VCs show healthy appetite for peer-to-peer companies (analysis)


Venture capital firm investment in peer-to-peer technology continues to build strength, according to a recent VentureTrends report by VentureDeal.

While the term “peer-to-peer” first hit the scene during the first dot-com boom and was associated with file-sharing sites like Napster and Kazaa, today’s peer-to-peer companies focus on making connections between individuals for a wide variety of purposes: Selling goods, finding a place to stay, exchanging advice or lending money. It’s part of a multi-industry trend towards more democratic ways of managing markets, where transactions and ideas are crowdsourced instead of going through a central hub or a small group of experts.

VCs are continuing to support peer-oriented companies, whose overall reach extends across a number of sectors. An initial public offering remains unlikely in the near future due to the relative immaturity of new entrants, with the possible exception of room rental marketplace Airbnb. Still, venture investors should be able to expect interesting M&A exits.

Recent History

2006 – 2007: A number of companies received funding for their applications, which were designed to enable “peer-to-peer” collaboration with online tools. An early entrant was handmade goods marketplace Etsy, which received $1.6 million in seed funding from Union Square Ventures. Another company was Inigral, a San Francisco-based company intent on developing software for the educational sector. It received $580,000 in Series A funding from the Founders Fund for its software that enables collaboration between students, their peers and instructors. The company has since received another $6.5 million in follow-on funding.

SocialPicks, a “community where stock investors exchange ideas and track performance of financial bloggers,” raised half a million dollars from Bay Partners in its first round of funding. The company was later acquired by stock market data and syndication tools provider FinancialContent.

2010: Room-rental marketplace Airbnb exploded onto the scene with its peer-to-peer marketplace aimed at the global accommodations marketplace. The company closed a $7.2 million series A round in 2010 and followed it with a $112 million series B funding in 2011 and is backed by a syndicate of top-tier venture capital firms and international investor DST Global.

Today: A current trend is veering toward peer-to-peer financial services, such as money transfer and lending platforms sites like peerTransfer and SoMoLend. This is in part due to users becoming increasingly comfortable with conducting business online and the success of crowdsourced microfinance sites like Kiva and Kickstarter. peerTransfer calls itself the “pioneering low-cost online international money transfer and global payments” company. SoMoLend is developing a peer-to-peer lending platform for small businesses and was seeded with $310,000 by Cincinnati, Ohio-based public-private group CincyTech.


The number of companies funded in this sector peaked in 2007, but a healthy number of companies (10) received VC financing in the first three quarters of 2011.

Excluding Airbnb, aggregate funding amounts in the subsector have been relatively stable over the last five year period, with 2011 showing a material uptick.

This investment has a strong regional flavor: The California and the Northeast regions have accounted for nearly 80 percent of peer-focused technology fundings over the past five years.

As part of the larger consumer web spectrum, peer-to-peer applications are in high demand. The near future will no doubt see expansion of peer-to-peer models to other industry verticals. For example, consumers can now rent out their own parking spots at Park at My House. With social media becoming embedded into most avenues of the user experience, peer-focused technology companies can leverage social network access to drive user adoption rates.

Whether or not they can develop significant IPO offerings remains to be seen, but depending on market traction and strategic importance to acquirers, M&A exits seem the most likely outcome for smaller niche-market oriented companies.

Sorry. Sorry. Sorry.

No posts for two whole days. Yikes. But I have a really good excuse. We were back on the East Coast raising venture capital to support our launch of iSellerFINANCE.com. And, it went really well. A couple more meetings and I think we are there. Planned launch date is June 2012. We’re excited! Stay tuned, and keep wishing us well. There’s nothing as powerful as good intention.