Venture Funding, One Dollar at a Time
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As the global credit crisis grinds on, it's getting tougher than ever for startups to secure financing. Commercial and industrial loans authorized by U.S. banks--including small-business funding--declined at an annual rate of 21 percent in the first quarter of 2010, and venture financing can be difficult to obtain. Many venture firms receive as many as 5,000 business plan submissions each year, but only about 10 percent are seriously considered, and fewer than 2 percent are awarded funding--not to mention that the process can sometimes take years, often killing promising businesses in their infancy.
Bill Clark believes there's a better way. A former portfolio manager in PayPal's risk-management division, he witnessed the contraction in small-business credit opportunities and he plans a July launch of MicroVentures, an Austin, Texas, peer-to-peer platform connecting startups with a growing pool of angel investors from across the U.S.
"Businesses are having problems going to the banks, and venture firms won't even look at an idea if you don't have a proven track record," says Clark, MicroVentures' CEO. "There are other ways to get funding, but they're also difficult. At MicroVentures, we realize that, and we'll look at every single business plan, get to know you and give you a chance."
MicroVentures charges startups an initial $99 application fee--assuming the basic business concept passes muster. The applicant then pays an additional $250 to cover due diligence costs before the plan is formally presented to investors. At the outset, the site will serve companies seeking between $50,000 and $250,000 in funding, but it plans to expand that to $1 million by the end of the year. MicroVentures claims 10 percent of the funds raised.
Investor enrollment is free, with would-be VCs permitted to pony up anywhere between $250 and a "soft cap" of $5,000 per company. Clark says MicroVentures signed on 35 investors in the first week alone and expects to add at least 1,000 more before listing a startup on the site.
"We supply all the information investors need to make a decision on whether or not to invest, and we facilitate dialogue between the investor and the business," Clark says.
"We also cut through all the red tape. There's a reason why nobody else is doing this--there's a lot of paperwork. After I came up with the idea, it took weeks and weeks of back-and-forth with the SEC before I finally got a yes."
Although MicroVentures plans to focus on a number of verticals, Clark says he expects green technologies and social media to emerge as investor hot spots. "We're not looking for companies that take 10 years and multiple funding rounds to become profitable--we have to look at making money for our investors," he adds. "But if you have a great idea and a great business model, we will work with you."