Crowdfunding Brings You Money and Contacts

You’re an entrepreneur, raising money for your start-up but you’ve hit the wall? Looking for angel round funding in the range of 50,000€ to 200,000€ is not easy if you don’t already have a working product along with some cash-flow and growing number of other requirements. And Venture Capitalist aren’t interested anymore. Some people even say the Venture Capital (VC) model is broken. That may not be exactly true. They just aren’t investing in your start-up. Or maybe in no start-ups at all.

The financial crisis has had a severe impact on the venture capital industry and the funds have largely stopped funding higher risk areas of innovation. Many venture capital companies have woken up into a reality where the VC model is just not working anymore (and some of them focus on other things, like maximizing the management fee).

According to research by Deloitte, funds are reducing their overall investment, supporting existing portfolio businesses and shifting investment focus to later-stage businesses that are either profitable or close to profitability.

“We’re seeing reduced investment levels as firms either invest smaller sums in very early-stage companies, or invest traditional sums in fewer and much later-stage companies. The middle ground has been largely vacated.”

On the other hand, there are new kids in the block who can potentially redefine the game. People like Paul Graham (Y Combinator) as well as Marc Andreessen and Ben Horowitz (Andreessen Horowitz Fund) are introducing new funding vehicles for certain kind of start-ups. The problem is, that is not enough, and they are quite local. What if your start-up is in Europe or in Asia?

Recognise yourself from the above? Don’t worry, raising money for a good start-up is still possible. It just may come in smaller amounts from more sources. It’s now called Crowdfunding. And it’s not only for start-ups, actually.

Crowdfunding in a Nutshell

Crowdfunding is an alternate approach to get investments for a start-up. It’s not actually a new idea as it has been developed over the last decade, mainly in the film and music industries. Unlike traditional models which rely on large contributions from one or two institutions, crowdfunding is based on raising small sums from many people. Instead of raising 300,000€ from three angels (100,000€ each), you collect 10,000€ from 30 private investors.

Crowdfunding isn’t going to replace venture capital, private equity, debt finance or stock-markets. In many ways it’s an evolution of “friends and family” and “angel” models, just operating with greater transparency and on a larger scale. It may even turn out to be an essential and complementary part of the financing tools needed to cultivate and grow new businesses.

But What’s the Actual Problem?

Number of traditional investors interested in start-ups who are looking for money in the range of 50,000€ to 500,000€, has decreased rapidly. It is also true that in today’s world more can be done with less money (“the old 5 Million euros is nowadays 500,000€). Investments in this category are high risk investments with potentially high return. But most of the companies will fail. That is only one reason why traditional investors are moving (and have already moved) away from this category. When alternate investment vehicles are invented to fill the gap, also the traditinal investors will benefit as they can this way have more companies in the funnel for additional investments.

Is Crowfunding The Solution for this?

A successfull crowdfunding solution has to solve many problems in order to be a feasible alternative for the start-ups and investors alike. There is an obvoius need for process simplification (de-mystification) and standardization concerning documents such as Term Sheet and Shareholders’ Agreement. An initiative in this field already introduces a Standardized Term Sheet acceptable by both entrepreneurs and investors. Trust and transparency are also probably some of the biggest issues. How do you create trust in the online world? How do you manage the communication with so many stakeholders? There will most likely be new innovative solutions for all of these challenges in the near future. The change is inevitable. Additionally, private investors can invest 5,000 € euros in ten start-ups, instead of putting 50,000€ to one single company, effectively decreasing their risk as well.

Case Trampoline Systems

Trampoline Systems, a London-based social analytics business, is already using crowdsourcing approach to finance its growth. Trampoline is raising £1 million from up to 100 investors with a minimum stake of £10,000. This is most likely the first time a technology business of Trampoline’s scale has used the crowdfunding approach. The effort has been quite successful as in the first two weeks they raised £330,000.

Not everyone can become a Trampoline investor. The Financial Services Authority (UK) puts some limits on what you can cannot do. For example, one has to be certified as high net worth individual or as a sophisticated investor (details are here).

What’s Next

I’m expecting to see things happening in this space within a year or two. There is no reason why this could not happen (despite possible obstacles set by authorities, for example). There are a few interesting additional aspects into this. For example, having so many people as investors may enable you to use them as advisors or contact makers.

So what do YOU think about this?

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You May Actually Want SMS Offers in Your Phone – But Very Selectively

The new omatkaupat.fi service is turning the traditional concept of SMS marketing upside down. Instead of receiving unwanted messages from big brands, this service actually lets you (The Consumer) choose which shops you like – and receive their special offers. It’s like “business twitter”, it lets you select the local shops and services you want to “follow” ie. receive their offers into your mobile phone. You can also put an upper limit for the number of messages you get weekly.

According to a recent poll in the Internet, about 80% of the consumers would like to have relevant special offers from their local shops in their mobile phone. The most wanted offer type was a significant discount in a grocery shop, for example -30% discount when showing the received message in the shop (typically a time-limited offer, for example only this evening).

Omatkaupat.fi enables the shop owners send one-way campaigns as well two-way mobile coupons where the customer can reply to the message, for example in order to make a reservation. As creating and sending a campaign is easy (text message is quite short, and there is no need for an ad agency to get involved), it can be done on ad-hoc basis and more frequently. It can even be done from the mobile phone of the shop owner himself, practically any time and anywhere.

What do you think about this? What kind of special offers, discounts and invitations would you like to receive?

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Nokia Outsources Finding the Golden Eggs to the Finnish Startups

Innovation in the big corporations is in crisis. This is obviously no news to many of us. Either there are not enough innovations in the company (typically due to corporate culture focusing on maintaining the Status Quo) or alternatively, there are too many of them. This is the case with Nokia which has in the recent years spent hundreds of millions of euros (if not more) in inventing new ideas, researching many of them, trying out some and patenting quite a few. For one reason or another, many of them have got “no-go” decision for any further action.

Technopolis Ventures, a subsidiary of a Finnish public real-estate corporation, has made an agreement with Nokia to offer some of these left-over innovations for Finnish Start-ups in Oulu and some other selected cities in Finland. Sounds too good to be true? Read on!

Nokia Outsources Finding the Golden Eggs to the Finnish Startups

The project itself has been launched already some time ago in Oulu, the home city of Technopolis. Today there was the first marketing event for the project in the capital area. The concept is aiming to find an alternative way to commercialize innovations, the traditional way being focusing on inventing new technologies within VTT (state-owned research center) or in the universities. The new idea is find a way to commercialize ideas born within large companies (such as Nokia).

The idea is good, maybe even excellent. The project is taking place in next three years (2009-2011). The total budget is 5 M€ and is paid by Tekes, the participating cities and companies. The amount of money seems somewhat small if they really aim to get 100 projects/startups involved.

The ideas now available cover some 60 Nokia-selected  innovations in the fields of Near-Field Communication (NFC), Environment, Health Care, Location-Based Services (LBS), Mobile Security and Future Internet Services.

There’s a catch, however. There is no free lunch, right?

The companies willing to take advantage of this must have a Finnish VAT number. Technopolis Ventures will match the companies and available innovations in the Nokia innovation pool. After evaluation and screening by Technopolis Ventures, and signing the NDA and contract with Nokia, the funding can be applied from Tekes. It is currently unclear whether the company actually MUST look for Tekes funding or can it also do without.

There were few interesting questions asked in the event today. Here are some examples:

Q: Can I get in touch with the original inventors of an innovation at hand?
A: Maybe, it depends.

Q: Can we see the list of the innovations available?
A: No, you have to provide some keywords describing your own idea (or company business) and we will see if there are matches with the available innovations.

Q: Inventing new ideas and innovations is easy. What about Go To Market strategy and help concerning that?
A: As Finland has one of the best innovation systems in the world, it will take care of that… (Note: This answer was given in a sarcastic tone)

Q: As Nokia keeps parallel rights to everything they “give away”, does it mean that Nokia can at any later time do the same thing than the startup?
A: Yes.

Q: Are there any restrictions concerning the exit phase of a company building its business on one of these innovations?
A: Yes, for example Nokia may forbid selling the company to a Nokia competitor (definition of this remained unclear).

You can also take a look of the Presentation Slides (in Finnish).

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Dynamic Carpool Trial in Amsterdam – Five Years Later

Ecolane Dynamic Carpool illustration (2003)

In 2004, we conducted an interesting dynamic carpool trial at Schiphol airport (The Netherlands) with a local partner. It’s since few years now, and I thought to take a look how the world has changed ever since. And trying to figure out whether the market (of dynamic carpool) will eventually be there or not.

The project was named “Easy-Rider”. There were respectable sponsors involved, such as Alcatel, KLM, Volkswagen and ABN Amro. Despite free phones for the participants, well functioning service and working technology, the project failed miserably. The key reasons for this were wrong business model (service expected passenger to pay money and driver to earn money) and bad marketing. Customers simply didn’t know about it so the critical mass was never achieved. The traffic in the pilot area was bad, but maybe not bad enough for the customers to change their behaviour.

Maybe somebody in that area (Schiphol) can comment whether the traffic is now (5 years later) better or worse that at that time?

Philippe Le Grand has written a good summary (it’s here) of various alternatives for carpool services currently available. It is interesting to notice that there is for example one year old new service that resembles Ecolane system quite a lot 🙂 They are also making the same mistake concerning the business model.

I definitely believe that there will be a need to re-engineer the private driving sometimes in the future (see a good Nokia research paper on the subject here).

But who is going to be the first one to really make it? What are the critical success factors for this kind of service? Is it use of social networking (trust), government subsidies (like is the case for public transportation), some out-of-the-box idea (like connecting every car to a “seat exchange”) or simply the fact that one day there simply are too many cars on the roads?

In some countries there are of course also cultural barriers. But that is another story then.

Comments are welcome! Best ideas win a free carpool place in my car (although I manly commute by bike nowadays!).

Ecolane Carpool Lanes - The Future?

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Magic and Innovation Boost from Lapland

I was lucky enough to be able spend a whole week at Levi, my favourite skiing destination in Finland. Lapland is an excellent place to relax, enjoy the relaxing atmosphere (assuming you are not staying at the new noisy Levi Center) and forget all the issues and matters you may have had in your mind when you boarded a flight from Helsinki.

Skiing in Lapland

Being somewhat a geek I guess, I was properly equipped to get into the wild. Whenever going skiing (cross-country and downhill.. aka gravity-assisted skiing) I turned on Nokia Sports Tracker on my Nokia N82 as well as the Polar FT80. This way I was able to see later where I had been on the map and see how my fitness was improving. If only these two things would be integrated and the battery would last all day with GPS (it almost does).

First day I skied 15 km, second day 20 km and third day 25 km. Positive trend at least!

It is amazing when you are skiing in a beautiful weather (-5C and sunny) on a non-crowded track how at some point you get into a state of perfect feeling. But it can also be that soon after that the sudden feel of innovation hits your head again. You begin to think about some things and thinking gets crystal clear as your head is no longer filled with unnecessary other thoughts. Good or bad, it happens 🙂

Maybe next year I’ll spend two weeks over there, skiing whenever the weather is good and working rest of the time (3G wireless works perfectl at Levi). Or maybe I should be skiing every morning and working in the afternoon.

Or maybe have it more strictly just as a vacation?

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