You are currently browsing the category archive for the ‘funding’ category.

Thanks to Dan Woychick of Woychick Design for tipping me off to Flattr, a new “micro-payment” resource that is currently in beta stage, but seems to be gaining momentum and visibility. I think it offers some intriguing possibilities for design-driven start ups. The basic concept is similar to the social network, Digg, in that you are “voting” your approval by clicking the Flattr button; the difference is that you are also making a small financial contribution out of your Flattr account with each vote. The minimum monthly balance is only a couple bucks, and at the end of each month, your account balance is divided by the number of Flattr votes you cast, so your individual contribution could be pennies per vote if you are an active Flattr-er (or you could cast fewer, more valuable, votes). Flattr micro-payments are then transferred by Paypal to the content provider receiving the vote. This video gives an overview of the concept:

The top rated site on Flattr right now is Chaosradio Express which has received more than 2,000 Flattr clicks. The Flattr site lists top content, as well as newcomers and undiscovered gems. Flattr’s Swedish co-founder Peter Sunde discussed the project in a BBC interview: “We want to encourage people to share money as well as content. It’s a test to see if this might be a working method for real micro-payments.”

While Flattr is a long way from reaching critical mass, I see it as another example of the growing micro-financing trend that also includes Kiva, Kickstarter, and Pepsi Refresh, in which funding opportunities are becoming more direct and intuitive, and where the “crowd” can make a great idea into a big winner.

I’ve come across a couple interesting items recently about funding for small businesses or entrepreneurial projects. Ironically (but not surprisingly), both come from Bloomberg Businessweek.

The first relates to a resource that I’ve written about several times previously: Kickstarter.com, which helps people fund creative projects and off-beat business concepts. Users post their “pitch” online, set a funding goal, and ask for contributions. In less than two years, more than $1.5 million has been pledged to more than 5,000 projects. This BW feature profiles eight projects that have been “kick-started,” including some shocking funding totals like more than $200,000 to build an open-source alternative to Facebook. Click here for that full story.

Second is an article by Chris Burritt about Wal-Mart-owned Sam’s Club piloting an online loan program for small businesses that are Sam’s Club members. Wal-Mart appears to be responding to a statistic stating that only half of businesses that applied for a loan got all or most of what they needed. Click here for that full story.

I see both of these stories as encouraging news for creative entrepreneurs who are looking for seed money to launch a new idea. In a time when traditional forms of funding have dried up, this trend of funding coming from new and unexpected sources is something to be aware of.

Thanks to Ann Christiano of Robert Wood Johnson Foundation for forwarding this article entitled “Three Social Entrepreneurs Sell Shares in Selves to Scale” from the Stanford Social Innovation Review, which dovetails nicely with my previous post about funding for social impact start ups. The article is written by Marcia Stepanek who writes a very interesting blog called Cause Global, discussing the use of social media for social change initiatives.

Stepanek’s article profiles three young entrepreneurs in the social innovation sector who have taken the idea of peer-to-peer lending a step further by offering “shares” in their own future earnings in exchange for funding their start up ventures. The trio have formed an entity called The Thrust Fund to facilitate their bold proposal. They announced their offering in a recent blog post, “we are going to offer equity in our life’s earnings for an unrestricted infusion of cash today.”

The three are offering between 100 and 200 shares in themselves at $3,000 each in an effort to raise between $300,000-600,000 in unrestricted start up funding. The ROI will be 3-6% of the individual’s lifetime earnings.

“If the market were up to speed on the scalable potential of social entrepreneurship with engaged funders like the more advanced VC community that the exclusively for-profit sector looks to for scale, this discussion would be lame,” the trio wrote on the Thrust Fund blog. “But it’s not and we are raising money hand-to-mouth when we know for sure that a modest infusion of capital would scale our social enterprises.”

While the peer-to-peer lending model is being replicated in many ways, the idea of investing in an individual and their potential for lifelong earning is really quite radical. Whether this is merely a novel publicity stunt, or a truly innovative funding model is yet to be seen. Regardless, though, it is another example of a creative approach to the problem of the underfunding of new business ventures that don’t fit within the—fairly tight—parameters of the traditional venture capital box.

I’ve written frequently about peer-to-peer lending, or “microfinancing” and the possibilities this emerging trend might hold for design-related startup businesses. I’ve also discussed Angel Investing in my posts about more traditional funding options. So, what happens when you combine these two concepts? Daniel Weinstein, Principal of Innovance Consulting wrote a very enlightening post on his blog recently entitled “Peer 2 Peer Angel Investing: The Future of Funding Startups?” in which he discusses this convergence and the opportunities it might offer—specifically for business concepts with a social impact mission.

Weinstein makes an important observation that “there are few entities willing to make a large investment in a company without the potential of a large return on investment.” In other words, many social impact concepts are simply not in the running for traditional startup funding. Weintstein continues, “But there are lots of people interested in making social change, and in backing it financially.” Most of us contribute to charitable organizations that we feel can make a positive change in the world, so the idea of channeling our giving toward a more focused goal is really not that radical.

The important distinction in the peer-to-peer approach that Weinstein lays out is that it is an investment rather than a donation. The expectation in this scenario is that the donor will make a return on their investment, hence the possibility of larger scale contributions and even equity deals under this model.

Weinstein sites Kiva as a template for this approach, but also points us to other organizations operating in the peer-to-peer lending space, like Prosper and Lending Club.

It’s great to see the topic of alternative funding being discussed in other forums. I believe strongly that entrepreneurs from the creative world need to be more savvy about how to fund our start up concepts in order to make them viable on a larger scale. The cross-pollination of peer-to-peer and angel investing is certainly worth tracking.

(note: The peer-to-peer lending category is evolving at a rapid pace, and there has been lot’s of activity—good and bad—in the recent past. Do your research before jumping into this pool!)

Fred Wilson is a constant source of intriguing chatter on the startup tech sector. Through his prolific blog, AVC, Musings of a VC in NYC, Wilson offers a revealing and insightful view of the venture capital process, and specifically his VC firm, Union Square Ventures which focuses on early stage startups.

Recently, Wilson blogged about the types of investments he’s looking to make in 2010. There were some predictable ideas (mobile technology and gaming), but one note caught my attention: “New forms of commerce and currency on the web.” Union Square Ventures was an early investor in Etsy, the popular online marketplace for handmade goods which I’ve noted numerous times on Merge, and Wilson laments that there aren’t more similar opportunities for buyers and sellers to congregate and do business online. He takes this a step further with the analogy of the San Telmo marketplace in Buenos Aires, which he suggests is a model for the type of experience that blends the social and commercial that is missing online now.

This is a point that I have been making recently as I’ve reflected on the iPhone app development boom and the combination of the iPhone Developer Program/iTunes Store that makes it so relatively easy to enter the market. I think the success of Etsy and iPhone apps demonstrates clearly that, when the path from idea to market is made simple, efficient, and inexpensive, designers and creative professionals will participate in a big way. I hope Fred Wilson’s prediction comes true and more such marketplaces begin to emerge in the year ahead. Please post a comment if you are seeing other examples that I’ve missed here.

Picture 42I found an article about a Minnesota-based maker of high-end athletic mouth guards in the Sunday edition of the Minneapolis StarTribune (ironically the article is only available in the print edition of the paper…what are they thinking? I’ll provide a link if/when they post it). While there is no strong design connection here, the story struck me as an excellent example of how a start-up company can use angel investors for that important initial funding surge. Bite Tech Inc. has developed “performance mouthware” technology that they claim reduces stress on the jaw and, in turn, improves the strength and endurance of athletes competing in sports ranging from football to golf. As the word has spread about this breakthrough product, pro athletes have been lining up to invest in the company. Adrian Peterson of the Minnesota Vikings, and NHLers Brett Hull and Marion Gaborik are among an impressive list of pros who have invested anywhere from $25,000 to $1 million each.

Angel investing is a common strategy for “phase one” or “first round” funding of the start-up process. Often, an angel investor is an affluent individual who provides capital—usually in exchange for convertible debt or ownership equity. According to Wikipedia, a small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital. Angels typically invest their own funds, unlike venture capitalists, who manage the pooled money of others in a professionally-managed fund. This strategy is similar to a “friends and family” approach which is a common way to gather seed money.

In a time when banks are being stingier than ever about small business loans, an angel strategy may make sense for designer/entrepreneurs who have a business concept that requires more money than they have easy access to. Our industry is filled with successful firm owners—many of whom are looking for new ways to build their business and generate revenue—hence, the design profession may be filled with potential angels.

So, where do you find these angels? Click here for an article from Inc.com that provides more information on this category and links to more resources.

kiva_logoOne of my first posts on Merge was about microfinancing or “peer-to-peer” lending and Kiva Microlending, one of the highest profile players in this industry (Microfinancing. A Model That Can Work for Designers? March 28, 2009). Surprisingly, that post is one of the most highly searched topics on the blog—so when I came across an article about Kiva in Business Week’s SmallBiz bimonthly, it seemed like a good time for a follow up.

Kiva, a non-profit which is known for their innovative approach to facilitating loans to entrepreneurs in the developing world, is making news again because they have now created an operation here in the U.S. for domestic entrepreneurs. U.S. loans will not exceed $10,000 and the total value of U.S. loans will be capped at $800,000. Despite loaning to the smallest of businesses in the remotest of locales (a cobbler in Mongolia was featured on their homepage as I was writing this), Kiva has had remarkable success with their international lending operation, with more than $80 million loaned and a stunning repayment rate of 98.5%.

Of course, there are many other players in this growing field. Prosper is the largest U.S. peer-to-peer lender and Accion and Opportunity Fund are also prominent operations. Ironically, in the same issue of SmallBiz, there are a couple articles about the gloomy state of the traditional small business loaning process which has completely dried up in the last year. Despite efforts by the Small Business Administration to stimulate activity at this level, the recovery has been slow and sluggish. Hence, I see peer-to-peer lending as an encouraging trend for designers who are exploring ways to launch a new venture. If your new business vision has stalled out because ytou don’t have the cash for an initial run of products or prototypes, this could be an opportunity worth exploring.


Merge Workshop at Kane Mini-Camp

I will be presenting a workshop on Entrepreneurship for Creative Professionals at the Kane Consulting Summer Camps this Tuesday, August 18, 6:00PM at Aloft in downtown Minneapolis. Spots are still available.

Picture 31When you read about “what’s next” in the online media space, there is much discussion about convergence. How will the many innovative social media platforms—Facebook, Twitter, LinkedIn—come together and begin to speak to each other, rather than existing in separate silos as they mostly do now? Likewise, how will the fractured media environment—network TV, online video, gaming, etc.—converge into a single primary stream? And ultimately, how will it all blend into an easily accessible platform?

Thankfully, there are smart people like Avner Ronen pondering these questions. Ronen is the CEO of Boxee, an online portal and aggregator of media, which seems to be at least slightly ahead of the pack in the race to develop a common platform that will facilitate the “holy grail” of cross-functionality.

Boxee recently received $2 million in VC funding from Fred Wilson’s Union Square Ventures (see my earlier post on Wilson), which is an impressive accomplishment in itself given the outrageously tight economy and correspondingly tight funding environment. Avner Ronen speaks candidly in the video below from TheDeal.com about the challenges of securing funding in today’s market, and specifically about the early stage of funding. Ronen describes how “angel” investors may previously have been a realistic resource for that $50,000-200,000 needed to build a concept through the prototype or beta development stages. Now, however, it is important for entrepreneurs to be able to “bootstrap it” through that process without external financing, and show some signs of growth and momentum before funders will be willing to take a risk.

While many designers considering entrepreneurial ventures are playing on a different field than Avner Ronen and Fred Wilson, I think it’s extremely useful for us to be aware of how this process happens on the broader scale as we build our business vision.

$I’m not sure why this is the case, but designers have a hard time discussing finances. Sadly, this is probably a big reason why there are not more designers launching really bold entrepreneurial businesses. If the scope of your entrepreneurial idea is modest, like publishing a book, or producing a line of gift items, your need for outside investment in order to bring the concept to market will probably be correspondingly low. But what if you’ve got an awesome idea that will take a million dollars or more to launch? Most of us wouldn’t even know where to begin to look for that kind of money.

As you may know, the traditional types of venture funding fall into three general categories: angel investors, venture capital, and bank loans, each of which has a long list of pros and cons. In previous posts, I’ve discussed the trend of microfinancing (March 28, 2009) that has added an exciting energy to this mix—but microfinancing is in its infancy and really hasn’t matured yet into a viable alternative for most entrepreneurs. Likewise, business plan competitions are worth keeping tabs on, but the amount of money available is usually relatively small and the timing is rigid.

I’ve been coming across some interesting resources that can help educate designers about the possibilities for capital funding. Fast Company has been running an occasional series by writer Karen Post which follows, first hand, the development of a social networking start-up called Oddpodz (ironically the social network is entrepreneurship-focused). In this article, titled “Finding Funding for your Infant Brand,” Post focuses on funding and describes the process of securing the second round of funding for the concept. She does a great job of laying out the struggles, challenges, and lessons learned.

Not surprisingly, the once-veiled world of venture capital is becoming more transparent, and The Funded is an excellent example of this trend. Here you will be introduced to a complete line up of VC firms in a range of categories—and you can see the ratings and comments of entrepreneurs who have worked with them. This is a great way to glean information about the VC process.

As the business world evolves, a new breed of venture capitalists is beginning emerge exemplified by Y Combinator, which specializes in early stage start ups in the tech area. What’s intriguing to me about Y Combinator is that they not only dole out money, but they also conduct workshops and seminars that nurture and educate young entrepreneurs.

The recent BusinessWeek article “So You Want to Get Funded?” surveys recent venture capital activity and presents some interseting findings. Among them is that 14.3% of VC funding went to a category called “consumer internet.” I’m not sure how they define that category, but it appears to be an area that designers are active in.

ca1Designers interested in entrepreneurship would be wise to get familiar with Chris Anderson, editor-in-chief of Wired magazine. In 2004 Anderson coined the phrase “The Long Tail” which describes the niche strategy of businesses that sell a large number of unique items, each in relatively small quantities. The Long Tail phenomenon is being played out a million times over by ambitious entrepreneurs on the web. Related to this, Anderson is a proponent of online advertising as a way for web-based start-up businesses to generate revenue, become viable, and find their place in the “tail.”

The Long Tail actually stems from some pretty complex economic and statistical theories from the mid-twentieth century. Wikipedia has a good overview.

But the best way I’ve found to get a quick primer on Long Tail economics as it pertains to entrepreneurs today is this short video:

This short clip of Chris Anderson at a MediaBistro conference gives a preview of his thinking and energy. lt1

Anderson writes a popular and informative blog called (of course) The Long Tail, which I’ll place in the Merge Blogroll. Also here’s a link to his book, The Long Tail: Why the Future of Business is Selling Less of More.

In fairness, there is much debate about how and whether Anderson’s vision will materialize given the light-speed evolution of social networking and the potential ramifications this will bring, but if you are a designer looking for ways to launch a new venture, don’t ignore this guy.

%d bloggers like this: