Startup Monday: Crowdsourcing Venture Capital

It’s a buzzword that has continued to grow in popularity, crowdsourcing. The concept makes a lot of sense, let a crowd make a decision or do the work normally done by a smaller specialized group. When applied to software, the OpenSource movement is most-likely the best example of how incredibly effective crowdsourcing can be. Create some software and then let the crowd, the collecting development world, make that software the best it can be. Some of the most bulletproof software on the planet has been the result of making software OpenSource…and some of the buggiest software on the planet (can anyone say Windows?) has come-out of making software in a vacuum.

Now let’s take a look at Venture Capital. The decision to invest in a particular company is usually made by a few key people in a VC firm. While these people might not be right all the time it’s when they pick a winner that the firm makes the big bucks. This is how Venture Capital has worked, well, just about forever. In some cases it makes sense, if you have 20 – 30 years of experience picking solid companies and generating returns there is no doubt that you’re an expert. However, who is to say that crowdsourcing couldn’t be applied to VC to make even better decisions?

Enter VenCorps – Community Powered Venture Capital. VenCorps is one of the first firms to apply crowdsourcing to the VC model. The points that they make for crowdsourcing applied to VCs are powerful and I happen to agree with them 100%:

  • The best founders in the world are just that, all over the world, not just in Silicon Valley, Boston, NYC, etc.
  • Launching a new piece of software or product generally doesn’t cost millions of dollars, in fact many companies can start with less than $50,000 today
  • The current/old model for Venture Capital doesn’t scale well

vencorps_site

Every month VenCorps invests $25,000 into a different Startup. To some people this might not sound like a lot of money, but for many Startups this is what it takes to get their idea off the ground. Rather than focusing on impressing a small group of VCs, entrepreneurs pitch their ideas to a group that then decides whether the idea should go-onto the next phase in the process. In the next step entrepreneurs complete a questionnaire about their business which is then voted on by members (aka the crowd). The final step is voting, Startups that have made it to phase three now have to hope that they’ve impressed the crowd enough to win the funding.

It’s a brand-new model for VC and I like it! Never has there been the opportunity to start a company with less capital than now. Thanks to the Internet and rapid development platforms like Ruby on Rails a dream can become reality in far less time and with far less resources than ever before. It’s great to see companies like VenCorps pioneering a new way to raise money that scales very well with the way Startups do. We are in a new era, the startup space is evolving, and with it VC must evolve as well, and crowdsourcing could very well be the new model for picking the companies of tomorrow.

{ 5 comments… add one }

  • Avraham Sure Lead June 21, 2011, 2:45 am

    I agree there is a lot of opportunity out there, as you say and to launch a new software is affordable. Always optimistic you may have forgotten to mention how many failures happen along the way.

    Reply
  • Gerald Edifice June 21, 2011, 2:47 am

    most venture capital will only invest after the start up have something tangible to present. I tell a story that sounds easy.. and it is not always like that.

    Reply
  • cm December 14, 2011, 8:59 pm

    Agreed with Gerald. Been there, done that! Started OpenTotal, at first thought, it was a sound business model and will work for the failing economy. We found out the hard way, losing momentum and interest as we progress because volume from a specific geographic or area was needed. Selling technology if anybody is interested, a great addon to their site :).

    Second venture FlowerBack.com – I see great potential. 25k would come in handy, but you got to look carefully at what they’re asking for in regards to equity. Not worth it if you got a sound business plan and model. Good luck to all!

    Reply
    • Morgan December 15, 2011, 7:32 am

      Thanks for your commnet @CM – best of luck with FlowerBack.com – keep me in the loop!

      Reply
  • cm December 24, 2011, 9:32 am

    Thank you Morgan. I definitely will. Thanks.

    Reply

Leave a Comment