Thursday, April 21, 2011

New site helps small businesses crowdsource capital from their communities

By Anneke Jong

Stanford Graduate School of Business classmates create Profounder, an online crowdsourcing tool that helps entrepreneurs raise money online from their friends and family.

(CBS News/ What's Trending) Part of the mission of What's Trending is to bring you to the source of what will be trending in the years to come.

"Summit at Sea" was an invitation-only conference held from April 8 -11, 2011 for entrepreneurs who wanted to share their new ideas with other likeminded individuals. These "Summit Series" meetings have introduced the world to some of most innovative thinkers of today. Founder of Philanthro Productions Anneke Jong was on the cruise with the "Summit at Sea" attendees and discussed their forward-thinking businesses that they hope will change the way we live.

After founding Kiva, an innovative microlending website that helped individuals to invest in entrepreneurs in developing countries, Jessica Jackley turned her sights to supporting innovators back home.

With her Stanford Graduate School of Business classmate Dana Mauriello, Jackley co-founded Profounder, an online crowdfunding platform that gives entrepreneurs the tools to raise investment capital from members of their communities. Instead of just raising capital the usual way, the two introduced Profounder at the DC10 Summit Series in 2010 at a live pitch event and won $50,000 for their idea. Now, they're spreading word about their business -- and helping others -- by sponsoring a live pitch event for up-and-coming businesses at Summit at Sea.

What's Trending: Can you tell me more about your experience with the live pitch event last year?

Mauriello: We had the opportunity to pitch the business idea for Profounder for five minutes to all the attendees (of the DC10 Summit Series), who then got to do some live trading of fantasy stocks for all the businesses being presented. Second Market created an app that enabled everyone in the audience to do live trading of fantasy stocks from their phones. At the end, the business with the highest value stock won $50,000 from the Summit Series team and Presumed Abundance.

Many of the people involved in that experience are now really integral parts of our business. Barry Silbert from Second Market is an investor. Kim [Scheinberg] and Rafe [Furst] from Presumed Abundance are also deeply involved in our business, and we're so thankful for that. It really all gelled around the same time.

Jackley: It was pretty wonderful. I wanted to add that of the $50,000 we got, $10,000 was used today to pay it forward with another pitch event which we hosted. Our goal would be that next year we continue to have a pool of money that is paid forward through the investments that Profounder has made as a company in Summit businesses.

WT: Can you guys talk about paying it forward and, what you did today with this live pitch event?

Mauriello: During this pitch event we wanted to make it more than about just money. We also made it about crowd-sourcing a number of resources from the audience so everyone could participate and get involved, and a variety of different businesses in different stages could also be involved.

Six entrepreneurs got to pitch their business for five minutes, and then we asked for three things: what someone could do to advocate for them, what someone could do to lend their skills and services and how people could actually invest. After all the pitches were done, we had boards up on the wall for each of the six businesses. We had color-coded post-it notes for each category of contribution, and we tallied who had the most support. The winner received $7,500, that was the innovative new URL shortener called, and $2,500 went to the runner up, Sole Bicycles.

WT: How did you identify the entrepreneurs who pitched today?

Jackley: What's nice is that it [Summit Series] is a supportive community. There's not really competitiveness as much as there's a mutual desire to see each other succeed... Even more than volunteers, we had recommendations. People would suggest someone else and say, "You should really talk to so-and-so, they're awesome and their product is amazing."

Mauriello: Our whole motivation for doing the event wasn't just about the money. Last year, we saw that you just get so excited about each other's businesses, but it can be hard to find opportunities to get involved in a tangible way. You noticed last year there were auctions and other ways to get involved and raise money for the non-profits, but for the for-profit ideas, there wasn't really that tool for engagement. This is our first iteration of that, which we hope continues.

WT: Profounder is founded on the principle of crowd-sourcing support for new ventures. What do you guys see as the future of that space? How are you hoping to shape it and what's next for Profounder?

Jackley: The statistics are so ridiculous and extreme; I almost start laughing when I say them. 99.9% of all businesses in this country are technically categorized as small businesses. Who's thinking about them, who's serving them? This market is so underserved. Eighty-seven percent of funding to private companies in the U.S. comes from friends and family -- not VCs, not angels, not bank loans -- it's offline, it's scrappy, it's haphazard, it makes Thanksgiving awkward... There aren't good tools to make it any kind of a standardized process. Not only is it offline, but they don't know what to comply with and which papers to file.

So, we decided to put this online and start with the people closest to you in concentric circles to do community-based crowd-funding, different than a wide-open, come-one-come-all marketplace. There's is a huge opportunity to start small and slowly build out. We're trying to provide entrepreneurs with the rules, the laws, and the best technolog, so people can slowly figure out how to fundraise not just through the obvious social networks, but beyond.

WT: At today's live pitch event, you included opportunities for people to invest money, but also to offer their skills, their support and their advocacy. It sounds like you guys want to build that into the functionality of Profounder to not only fundraise, but also to provide connections and support.

Mauriello: We wanted to start with the deepest need where we felt like the least innovation was currently happening, and that was definitely friends and family fundraising. It hadn't been innovated at all since the church collection basket. We wanted to start there and then partner with others in the space who are doing amazing things to provide this whole basket.

But, more and more we see that it isn't just money that is going to make it or break it. Money helps, but they may also need great marketing advice or just having people shop at your place more often can been tremendously valuable. So that's a next step for us.

Former strategy consultant by day and social entrepreneur by night, Anneke Jong is a student at the Stanford Graduate School of Business and a founding partner of Philanthro Productions. She writes and speaks about technology, design, storytelling, and the future of philanthropy. Twitter: @annekejong , Blog:

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