There’s gotta be a better way!

entrepreneurIn 2008, I tried to create a startup around TagSpot, a mobile service. And it didn’t work (so far), partly because of me and my own weaknesses, but also because it’s far too hard to create such a company in Europe, especially now.

Obviously for us, the first breakpoint was money. I don’t have any savings, so I can’t quit my day job, even for a few weeks. And I’m a tech guy so I’m not particularly excited by the idea of spending too much time on a business plan to attract investors. The only things I’ve got are ideas, skills and passion. And in my humble opinion that should be enough. And I’m fed up with all those people trying to convince me that there’s no way around, that you have to think in business terms right away. And where is the room for intuition and iterative realization? Why are so many projects with good business plans and big investors failing? There’s gotta be a better way!

Let’s invent it. Let’s create an alternative way for entrepreneurs to get started. And more importantly, let’s do it by leveraging the current financial situation instead of whining about it. There are thousands of people out there looking for better investment opportunities, disappointed by the stock market, willing to get back to a system in which they can sponsor entrepreneurship and innovation rather than participate in speculation. Banks cannot offer that kind of alternative, they are far too entangled in the current state of things. But we, entrepreneurs can do something about it.

Consider the example of MyMajorCompany. Those guys created a marketplace where music listeners can become producers and allow artists to get started. My idea is to adapt this concept to the IT entrepreneurship sector by developing a marketplace allowing startup creators to propose their ideas and prototypes to small investors willing to participate in collective funding efforts. The idea is not to replace business angels, venture capitalists and banks, but just to offer a complementary alternative for idea-stage projects.

There are a lot of details to figure out, a lot of things to set up, and all I have for now is a set of guiding values:

  • Money is merely a means to an end: entrepreneurs, investors and we have to agree to that. I don’t think “money first” is a good strategy.
  • Innovation is our end: it will be the main criterion by which we’ll select projects to sponsor. It should be our primary concern, and it will drive everything else (profitability, employment, etc.)
  • Transparency: the key to reassure investors is to give them maximum visibility of the projects they invest on. And we have to be transparent about this platform too, it has to offer the best possible alternative.
  • No speculation: investors will not buy shares but interest participations, that they won’t be able to sell. I firmly believe that buying potential value is what led us to the current crisis, and I want to allow people to invest on value creation, period.
  • Focus on software: this collective investment platform can certainly be adapted to many different sectors but software-based projects seem like the best option to start with, because they don’t require too much money to start, and because it’s the sector I understand best.

We need a name, we need graphics, we need a first site, we need ideas, we need all those who agree with the values above, who are willing to change things and have skills, ideas and passion to put in this project. I’ve started to work on a first prototype but I want to involve more people because it’s the best way to make sure that we will develop the platform WE all need.

So if you have questions, ideas, suggestions, if you want to participate in this project, whatever your background, if you know someone who shares our values, use comments on this post, or drop me an e-mail. And when I say “whatever your background”, I mean it. Of course, we will need software developers (notably Grails/Flex), graphics designers but also accountants to figure out how to make our investment system fit into existing laws, small investors to let us know what they expect from such an alternative. At the very least, let’s start a debate about this idea.

There IS a better way, and we have the power to build it now. So bring it on…

11 thoughts on “There’s gotta be a better way!”

  1. Since the VC’s seems to squeeze (see http://www.ft.com/cms/s/0/c78a2fc0-da8b-11dd-8c28-000077b07658.html) this could really be a new and really different approach to financing new companies.
    I see your proposal as a kind of collaborative solution with some parallels with open source spirit, and that sounds to me like a fair way to go. At least it is more sound to focus on real added value company than bankable ROI/IPO on low quality products.
    In a odd way, I think this kind of scheme could help real concurrency to clean the place and make it possible to newcomers with good idea and passion to find their places.

  2. Totally!! And beyond that, we could use this platform to innovate not only in the way start-up are funded, but also in the way they grow and manage themselves. For example: instead of hiring a freelance graphics designer and pay them just in cash, we could pay them partly in interest participations (I don’t know how to call it yet). This way, freelancers would be more involved in the project even if we don’t hire them for good. More generally, I think it would be a formidable opportunity for investors to invest more than just money: we could encourage them to help out with contacts, advice, promotion, etc.

    Like you said, it sounds a lot like Open Source, and it’s not a coincidence since I’ve been an OS advocate for quite some time now. But contrary to Open Source, which leaves unanswered THE BIG QUESTION as to whether it’s fair not to share commercial benefits with contributors, this system would make it possible to answer it.

  3. You could call it: “Interests Options” ;) or credits, kudos, …
    On the other hand, reading the part about growth and management, I think that platform maybe could also help/encourage cross-startup synergies. In incubators you’ve got plenty of young entrepreneurs full of ideas with an helping structure. I’m thinking of a kind of online structure that can help to share people skills among software companies.
    But we’ll see that maybe later ;)

    1. Eric just pointed me to http://colektivo.com. They’re based in Quebec (one day, I’ll go back there), and they have a very similar set of values: favoring value creation rather than speculation, that sort of things. But they have taken a different approach than what I have in mind: they want to create an investment fund, where people invest without knowing beforehands where their money will go, and then the fund grants loans to projects, and investors get interest on those loans. It certainly minimizes the risk for the investor as you don’t wait for the company to be profitable, but I see at least 3 issues with that approach:

      1- from an entrepreneur perspective, since it’s a loan, you still have to start reimbursing it right away, even though you haven’t created any value yet
      2- from an investor point of view, even if the company makes huge benefits, you only get the loan interests that were negotiated at the beginning
      3- from a philosophical standpoint, it doesn’t encourage value creation enough, because investors don’t have a particular interest in the company being successful, just in it having enough money to reimburse their loan.

      It feels too much like what a bank would do, even though it has obvious advantages over it. Maybe their approach is more adapted to generic SME’s, I don’t think it’s suitable for software startups, which is a little more specific in that it involves a little more risk.

      What do you think?

  4. Sébastien,

    Great article!! It’s nice to see people like you bringing new ideas to change the way businesses have always been financed (change paradigms).

    Here are some clarifications about what you’ve said..

    1- from an entrepreneur perspective, since it’s a loan, you still have to start reimbursing it right away, even though you haven’t created any value yet

    J.N. – First, it’s really important to understand that we won’t only grant loans to startup businesses. We will especially invest in SMEs that already have created value and/or are in the process of, namely growing and established SMEs. Otherwise, it would be too risky for investors.

    Moreover, if the investors collectivity decides so (because they manage the investment fund), a borrower who ask a grace period on his loan would be able to get it, which will help him to generate value for example 1 year without paying any interest.. Their is a lot of possibilities with our platform. A collectivity is wiser than one or few specialists, and thus investors will be able to pick the best projects for them, but also to help local SMEs (startup, growing, mature or declining one).

    2- from an investor point of view, even if the company makes huge benefits, you only get the loan interests that were negotiated at the beginning

    J.N. – Actually it could be more lucrative for investors that the our fund invests in business equity, but it would also be more risky.. Loans are probably a better way to assure good and stable returns to investors.. In starting up this project you also have to think about what people want and I don’t think they want to be pay in 4 or 5 years, they need rapide returns on their investments.

    3- from a philosophical standpoint, it doesn’t encourage value creation enough, because investors don’t have a particular interest in the company being successful, just in it having enough money to reimburse their loan.

    J.N. – As I said priorly, it’s possible to create value even while reimbursing a loan. Not as efficiently as if it was an equity investment, but nevertheless its possible.. For SMEs (borrowers), Colektivo is a good alternative to banks, but not that much an alternative to business angels and venture capital firms.. These kinds of investors aren’t only bringing cash to companies, they are also bringing knowledge and experience.

    Thanks

    We will keep you informed

    1. Thanks a lot for those clarifications, Julien, as it allows me to sharpen my definition of what I want to do with this project. With the same set of values, Colektivo and this project are targeting different investors and different entrepreneurs. Those 2 kinds of collective investments could even be complementary, starting up with what I have in mind, and growing up with something like Colektivo for example. That would be an awesome alternative setup.

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