Crowd-Funding

A couple of weeks ago I wrote about a business idea I called AngelsWanted. AngelsWanted is a new model for an early stage venture capital/business angel investment vehicle that instead of seeking investment from a few high net worth individuals or corporate investors uses micro-investments from thousands of everyday people. Those same people then vote (applying the theory of the wisdom of crowds) on which investments to make.

Not surprisingly like all good new business ideas, it’s actually (sort of) been done before by nvohk (’invoke’) who are “an eco-clothing company managed by the people who wear it”. Their model is to get 5,000 members to sign up to invest $50 per year. The members then get to vote on major decisions that the company takes and will recieve a 35% share (via reward points) of the companies profits.

Have You Got The Nerve TV is also based along similar lines and is looking for 3,000 members to each contribute £60, in return they become an ‘Executive Producer’ of ‘Have You Got The Nerve’ TV. The founder Mark Bowness is planning to ensure that members recieve a share of the profits if the business is sold.

Then there is MyFootballClub which has asked 50,000 members to each contribute £35 in order to buy and manage a football club.

It’ll be interesting to see what’s next for crowd-funding. What business do you think would do well with this model?

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• 1

  [...] After keeping up with John’s blog, and reading about his thoughts on crowd-funding, and his views on companies like: [...]

  Likes to think » Crowd-funding on February 24th, 2008
• 2

  I’m an executive producer of haveyougotthenerve.tv, it’s a fantastic concept. It has grouped together a lot of creative people in 1 place and is not only a very exciting project but we’re also having fun as we go. Keep your eye on it, several exciting developments over next couple of weeks.

  Personally, I think this way of funding businesses is the future. It creates a big bankroll quickly thus enabling you to get the project off the ground, but it also brings together like-minded people. You can throw ideas around between you and because of the number of people involved eventually you end up filtering the ideas down to the best ones. So in the long term the idea is more likely to work.

  I don’t feel they are get rich quick schemes, if that’s what you’re after you need to look elsewhere. You may make money (possibly a lot) in the long term, but they are more about creating communities of like-minded people, working towards the same goal.

  I have a million and one ideas for using this crowd source method and am working on a couple as we speak. Watch this space.

  smw on February 24th, 2008
• 3

  “eventually you end up filtering the ideas down to the best ones.”

  Exactly it’s the wisdom of crowds in action.

  John on February 24th, 2008
• 4

  The concept is unique and might be perfect for some projects, but in my view it doesn’t give the right balance to set a high profit business.. the ownership is diluted and that perhaps might affect the vision and growth strategy in the long run..

  Getting someone to invest in your project is a huge ask, and getting it right boosts not only your confidence in the project but also gives the project a breath of fresh air. This initial insecurity about whether the funding will be possible gets diminished through crowd funding, because the level of risk for the investor(s) is low and they might put in their money even if they are semi convinced.. which perhaps might not be the right attitude towards a project

  fc on February 25th, 2008
• 5

  I don’t see there being a problem with the ownership being diluted – it’s a model that works for hundreds of listed public companies.

  In actual fact, in most of the examples the ownership is not diluted. Rules governing the offering of shares in a private company in both the USA and UK restrict the ability of the businesses to actually sell shares, instead they are selling memberships while the founder retains ownership.

  I see that as one possible hurdle the model faces, but law might change, or the businesses will find a suitable way of satisfying the members that their rights will be protected. Alternatively I suppose many of the businesses could move offshore…

  John on February 25th, 2008
• 6

  well, boys and girls

  It is happening
  http://www.wired.com/techbiz/startups/news/2008/02/crowdsource_greenfund

  Tom on February 27th, 2008
• 7

  Well not quite, he’s announced his intention but reading the article it seems he’s not managed to find a way around the legal hurdle of taking investment from unsophisticated investors.

  Until that hurdle is crossed the crowdsourced venture capital fund is just an idea. Hopefully initiatives like this will help drive through supportive legislation.

  John on February 27th, 2008