Free to a good home: Startup idea.
Here is an idea I have been pondering for about a year, and haven’t had any time to move forward with it, so it’s yours if you have the time, knowledge and drive.
They say an idea is 1%, and execution is 99%, so if you do get something up and running, I would like to have an involvement somehow; that’s all to be discussed.
A weekly/monthly small automated deduction from a crowd of ‘members’ to be utilised for investing in early stage startups that show promise. Think of it as ‘investment subscriptions’.
Say there were 200 members (passionate startup types) putting in, say, $10 a week. That’s only a sandwich lunch per week in costs, however combined, it’s a bigger pot. That’s $8,000 per month in the kitty/trust/account which, every two months, could be leveraged to make a $15k investment. Even better, 400 members with $12.50 a week equates to $20k to invest each month.
The fund/subscribers (see challenges below) would end up, say at 10 investments a year, which means a small share of equity in 10 local early stage startups.
The two easiest options for investment decisions is either some subscriber voting system, to allow members to review 2-3 page pitches and vote on which entity receives the next funds, or it could be an elected panel of acute investors that decide on behalf of the membership.
There would be a management fee, or something to help cover costs, and give back to the people who do the behind-the-scenes work. Maybe every investment includes a few percent for the work?
The bigger purpose
The bigger purpose of this, would be to help stimulate early startups into success, and give them an early hand up. This can only help the wider innovation and startup communities.
Secondary to this, is to encourage small “mum and dad” investor types to invest in early stage startups without the hassle of having to hunt their own opportunities, or understand the fine details.
The biggest challenges here is in the Australian financial regulations. The environment at the moment is as a startup, you can’t actively raise publicly (for example, tweet you are open to investors), and the people you can approach are typically seasoned investors only.
The recent announcements about new equity crowdfunding rules, looks like they will head towards a model of encouraging small startups to head towards public company models, which for many founders, isn’t an exciting attraction.
I’m not a lawyer, so I can’t give any advice here, however surely there could be a fund created as a club membership, and that club just happens to use membership fees to invest in startups? Someone needs to research financial legal boundaries more than I have. I don’t believe a not-for-profit would have the sustainable energy – it would need to be a commercial entity, but that’s all down to legal eagles.
Early stage local startups receive cash when they really need it. Investors who can’t drop $20k on a table still end up with a small amount of equity to start with. The aim is that some of these startups go on to provide a good return.
The community that is subsequently created (membership in my example here) can possibly help with networks, introductions, promotion and advice, beyond just pitching in their lunch money.
Who’s in? Love to hear your thoughts; feel free to reach out for a coffee, or make a comment below.
8 January 2016 at 8:02 pm
But… It depends on much equity would they they acquire from the startup as to whether the idea is palatable. What does their $10 a week investment equal in terms of shareholding? If too low you devalue the startup. If too high it makes future capital raising difficult…