Friday, February 19, 2010

Crowd Cash: GrowVC

There's a new start-up funding model -- Grow VC -- that's catching a fair share of viral buzz this week in the social enterprise space. Earlier this year, I named collaboration as one of the megatrends that would shape the social enterprise field this year. Grow VC, what some are already calling the "Kiva for social enterprise investment," is launching to disrupt the Silicon Valley stranglehold on new-business funding. Its goal: to crowdsource seed money for very new Web and mobile start-ups -- and chiefly in Europe and Asia.

The Hong Kong-based Grow VC creates a members-only Web community of start-ups, experts and funders. Each of these account types has a different set of features attached to it. Start-ups apply for funding from the funders; experts are service providers such as consultants and lawyers to help entrepreneurs be successful.

The platform pools 75 percent of all paid fees into a community fund that it manages but lets members determine which start-ups are most promising for investment. Members who are best at targeting the most successful companies get the biggest financial rewards when the fund starts earning a return on its investment; if a start-up fails and there is no ROI, the community fund covers its own losses. Subscriptions to the platform range from $20 to $140 a month, depending on how much money the start-up is seeking; the fund focuses on start-ups that need seed funding of between $10,000 and $1 million.

"We created Grow VC because nowadays, VCs tend to focus on more mature companies and friends and family networks and local business angels are not a solution for everyone and don't always support international business is the best way," says founder Valto Loikkanen, of Helsinki, Finland, who also is the Chairman of the Startup Commons Association, a nonprofit group that works to make start-up funding more cost-effective globally. "We created Grow VC to help new start-ups bridge that gap in seed funding, knowing there isn't as much supply for this kind of funding as there is need."

Grow VC, which formed in 2008 and has been fine-tuning its model since, isn't the only crowdsourced funding platform; TheFunded,, and others also aim to tap online communities for micro-funding as a way to end-run the dearth of seed-funding of new tech start-ups outside of Silicon Valley. But Grow VC says it offers the broadest array of community features yet, including a members leaderboard, access to experts, and introductions to entrepreneurs with common challenges and interests.

The upside to crowdsourced start-up funding? Such Web platforms expose more people to the goals of new social enterprises while exposing the start-up to the wisdom and guidance of an expert crowd. The potential danger of such models is that they could turn the push for seed funding into a popularity contest, giving an advantage to savvy marketing and already well-funded, low-risk ideas at the expense of bold [and more needed] innovation.

What do you think? Can crowdsourced funding models offer what others can't to spur innovation and seed capital?

-- Marcia Stepanek

(Illustration by Cyro Pintos, Uruguay)
(This first posted on and appears here with permission)

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