Start-up Entrepreneurs' Blog

Just When You Thought Crowdfunding Wasn’t for Start-ups – It’s Here!

January 21, 2011

 

It is difficult to raise funding for start-ups. One of the critical issues is finding enough investors to contact, there are only so many hours in a day and they are not the exactly standing on street corners handing out money.

While it is difficult for the entrepreneur to find investors, it is just as difficult for investors to find entrepreneurs and start-ups. The top tier firms and angel groups are obvious to locate, but that means everyone approaches them, and competition for their attention and money is fierce.

Couldn’t there be a better way? Bill Clark, CEO of MicroVentures Marketplace, thinks his company can alleviate this problem. According to Bill, “Many investors don’t normally have access to the start-up deals, but would like to. And many entrepreneurs are simply unable to raise capital through traditional methods.”

MicroVentures will help companies raise their seed and early stage capital.  The marketplace was launched only four months ago and already has over 350 investors. Bill doesn’t think it’ll be long before they have the 1,000 investors.

CYNTHIA: I understand not every start-up proposal will get accepted into your program. You’re selective. I read there is a two step approval process for start-ups. The first is a general business review. What criteria are you using in this phase?

BILL:  We talk with our investors on a weekly basis. We go back and forth with them until we get a good understanding of what is the investor’s comfort level and what types of investments they are seeking.  We look for start-ups that we think we can market to our investor base. In the first phase of the selection process, we look at a start-up’s product idea, the team, the market size, and the competitors.  

CYNTHIA:  With all the types of start-ups included in your program – from bio-tech to retail to semiconductors – that’s a broad range of expertise. Have you developed a network of experts that can sanity check these business proposals in the due diligence progress?

BILL: Yes, we’ve assembled a wide range of contacts in a variety of industries. We are confident that if we don’t already know someone, we can locate an expert.

CYNTHIA:  In the second phase of the approval process, you perform a due diligence for the investor.  What do you do exactly at this point?

BILL: We do a thorough due diligence.  We do a background check, not only on the team, but also on the board members and advisors.  We scrutinize the financials – cash flow, balance sheets, use of funds, burn rates. We talk with the critical team members. If the start-up has advisors, we speak with the advisors to get their perspective on the company and get a feel for how the advisors have been involved. If the start-up had prior funding, we review these deals to see what milestones were met, what results were achieved, and how they used the funding.

CYNTHIA: Given that investors are only putting smaller sums into these start-ups, is there a total investment range that you are looking for?

BILL: You’re right. Our investors won’t be interested if the start-up is looking to eventually raise hundreds of millions of dollars. We are looking for start-ups whose total investment is less than five million. At this point, we think the bulk of our business will be start-ups looking to raise hundreds of thousands dollars to make a prototype or to get the first release of the product into the market.

CYNTHIA: Will MicroVentures provide the legal agreement with the T&C’s between the investor and the start-up? 

BILL: If the start-up approved through the second phase, we then create a private placement memo (PPM) from the results of our due diligence. We have been approved by the SEC and we do all the necessary filings.  Once these are complete, then the start-up’s proposal is listed on our website, investors can review the deal, and determine if they want to invest in it.  Investors can invest up to $5,000 online. Funding beyond this amount is handed offline through our offices.

CYNTHIA: How long does your process take?

BILL: Right now it takes about 2 weeks. 1 week for due diligence and 1 week to finalize the PPM

CYNTHIA: This is a fee based service. How much will the start-up have to pay?

BILL:  Start-ups pay a nominal $100 fee for the initial selection process. If they are approved and decide to continue with the second phase, they will pay $250 for the due diligence. We pay for the PPM and all of its filings.  We only collect a commission if the start-up gets funding, and this commission is what we use to offset the cost of the legal filings. As a company, Micro Ventures is incentivized to only approve of start-ups that we think are a good fit for our investor base, which is one reason we spend so much time getting to know our investors’ preferences.

CYNTHIA: What are your future plans? Do you have any intentions of going international? Do you have any plans for brokering either series A or B funding rounds?

BILL: Right now about 75% of our investors come from California, Texas, and New York. We’d like to expand out into the other parts of the US. We don’t have any plans for going international because of the different regulatory considerations for each country. Eventually we might get into series A funding. We want to focus on growing our investor base and offering to assist entrepreneurs with the raising seed and early stage rounds.

About Micro Venture Marketplace

Micro Ventures Marketplace (www.microventures.com), an online peer-to-peer investment service, aimed at opening up a whole new avenue of funding for entrepreneurs, startups and small businesses. MicroVentures helps start-ups seeking $150,000 to $1 million

Filed under: Start Up Funding,Uncategorized

Tags: crowdfunding, micro venture financing, MicroVentures Marketplace, new venture capitalist, Start Up Funding