It wont be the banks, and it wont be the VC’s – so WHAT’s NEXT for the funding of innovative and entrepreneurial companies – that small spark which fires nascent, embryonic companies into life? How do we fast track those companies to maturity? As right now faced with the increasing speed it seems of the decay of an old industrial system all countries need more startups.
Part of the solution lies within what has been an emerging trend the evolution of the funding of startup’s via micro-funding, in fact the regulation development in the US, is a clear indicator of the scale and growth of this emerging trend. More importantly micro-funding has been proven to be beneficial in many ways – mitigating risk, but also democratising the power of financial capital. And of course it comes down to power – who has it and who does not. I am not saying “away with the banks or VC’s”, but what I am saying is that there exists other highly viable models, which should become part of the overall financial eco-system.
Why? Because commerce serves society, society and the people that make society supply the labour and capacity for oganisational fidelity. As we have seen our current system has let us down very badly – so we are faced with a design challenge. If NOT THAT – THEN WHAT?
The design challenge of funding innovation
Ah, the thorny old issue of innovation, where does it come from? How do you incentivise it? How do you fund it? And how do you harvest it? I have become convinced that innovation and entrepreneurship are the key to the GDP question, particularly as we see larger, established companies failing faster. So what takes their place? The truth is this, that 80% of growth, or regeneration, new jobs and inward investment are generated by new companies. Not that you would think that from reading the financial papers. It is these people through entrepreneurial endeavour that are largely building the future, rather than trying to protect the past.
And, of course, innovation needs to be funded. For the last 50 years a large chunk of those funds have come from the venture capital community. But, in the same way that other parts of the industrial model are flagging, VC funding is no different. The Go4Venture monthly report, March 2010, stated that ‘Professional venture capital funds have become less relevant to the financing of innovation for the time being’, and that ‘the market is wondering whether professional VC managers add sufficient value’. The report also pointed that as VC funding became less venture focused, read ‘risk averse’ and ‘poor deal flow’, many entrepreneurs have had to become ‘creative’ in terms of fund-raising to feed the innovation machine. In fact more money is raised through friends and family than through conventional VC funds.
So it does not surprise me that when faced with a form of institutional failure, in this instance, funding for start-ups, the ability to access funding and engage in an entrepreneurial community is also being redefined. In the same way we see an emerging pattern of how different companies are challenging economic and organizational orthodoxies – a company called GrowVC is doing the same thing with funding. Although The Grow Venture Community has been described as the kiva of start-ups. Grow Venture Community is better defined it as a platform and ultimately an ecosystem that enables a community of practice to come together, to share knowledge and information, and in so doing to accelerate innovation. The ability to connect people, skills, knowledge and money to each other is what makes GrowVC special.
GrowVC is a funding model for technology start-ups which draws financial investment and intellectual capability from a global network that forms a specific community. As the company themselves say, ‘the next Silicon Valley is not a place, it’s a platform’ and community on the internet, that wants to be open, collaborative, ethical, transparent and highly effective. Not unlike other companies that have harnessed tools and technologies to remake their world afresh. And it works like this: those that join get access to a global service for entrepreneurs, funders and experts.
Grow Venture Community is part of that story and represents an evolution in how start-ups are going to be funded in the future. There is a growing recognition of a dysfunctionality within our money supply system, and that applies as much to venture financing as it does to banking. So what’s next is defined by what we want. And why should that matter to the ordinary man and woman in the street? Because, we are faced with a real challenge as we decouple from our industrial society – whose going to be making and creating the companies for the future? The answer lies with the innovators and the entrepreneurs.
GrowVC has asked the following questions, HOW do we create the right conditions to unleash innovation? What if the next silicon valley was not a place but a platform? Who has the right to invest? Who has the right to be an entrepreneur? Where does knowledge reside in what to invest in and what not? What is risk and what is not? GrowVC came to the view that the Human Operating System we are currently co-creating in which networked communications becomes the connective tissue by which we can re-organise to create in entirely different ways could equally be applied to investing. The founders believed that everyone could be and should be investing in start-ups. And why not?
In this process of the democratisation of venture funding, and the creation of a new innovation ecosystem (to accelerate deal flow, that creates more companies, that creates more jobs), it has been reported back to me that an increasing number of Americans believe this could be the re-invention of the principle of the American Dream. This is achieved by breaking down the barriers between who can and who cannot engage in wealth and value creation as an entrepreneurial activity. In the same way that debates raged a few years back about who had the right to create journalism, film, books, photography, etc., ‘the professionals vs. amateurs’, companies like GrowVC offer the opportunity where anyone and everyone could be or should be funding start-ups. Although funding entrepreneurship has always been defined as high risk, the recent track record of our entire financial system makes that seem like an oxymoron. Such is the pressure for change that the Wall Street Journal[ ] reported that,
Federal securities regulators are weighing demands to make it easier for fast-growing companies to use social networks such as Facebook and Twitter to raise money by tapping thousands of investors for very small amounts of shares. The Securities and Exchange Commission is looking at adapting its rules to encourage Internet-age techniques for small companies raising capital. The issue is part of a wider review by the agency into whether to ease decades-old constraints on share issues by closely held companies. If all goes well, small companies can raise cash relatively cheaply, while investors get a stake in an innovative business with limited downside risk. The SEC is now considering calls to relax its rules to make it easier for companies to use crowd-funding without having to undergo the full panoply of disclosure and other legal requirements required by the securities laws for share issues.
If countries, regions, cities and towns want to accelerate innovation, if they want to give entrepreneurs the best possible chance to succeed, then they need a platform like GrowVC, which is best described not by the misnomer of ‘crowdfunding’, but by a global community of practice which is redefining the possibilities of entrepreneurship. Through local chapters in China and India, for example, early stage entrepreneurs that would never before gain access to global information and knowledge can now do so. It is but one small example of understanding the possibilities of being an open platform and ecosystem rather than a closed one.
We know that identity, belonging and accountability are forged when we participate in the creation and building of things/stuff/culture. My belief is that the idea of democratizing financial capital could offer real long term value for society. Better wealth distribution, an acceleration and increase in the number of companies funded, a different type of engagement with investors and shareholders that could become the checks and balances that our society so desperately needs and a new organizational model which is more inclusive, lighter, sustainable, adaptive. Not unlike the work LEGO has been doing. It too has innovated in how companies are organised, how it motivates and facilitates great thinking, how that is sustainable and how that has social benefits too. It is what you might call the collaborative enterprise.
The default setting is human, inclusive, participatory, open, representative of – I believe – a new moral economy – and that economy is built upon the principle of openness (A principle of No Straight Lines). To expand upon that thought taken from the book: the concept of being open facilitates a new organizational, social and commercial capability. And it plays a key role in helping participatory cultures to function properly, as part of a new operating system where mutuality and the sharing of knowledge, information, data and resources can accelerate innovation and redistribute wealth and provide for a better world. It is inclusive by design, and its by-product is organizational and social cohesion. In designing for a more sustainable world, we must seek mutual gain and mutual benefit.
There is a significant body of evidence that shows us that participatory, open, socially orientated connected platforms – can be built cheaply, operate differently to conventional models of organization – which can outperform these large siloed incumbents. Just ask Steve Ballmer about the co-creation of shared software.
GrowVC believes an important part of that mission is to make the platform and ecosystem open to all parties to develop services and businesses on top of the technical and legal framework which has been created. GrowVC’s vision is that they want to see 3rd parties able to run successful business by utilizing the GrowVC platform and tools.
To date the Grow Venture Community and micro funding network has grown to over 11,000 entrepreneurs, investors and experts from 200 different countries. Its platforms exist in Chinese, German and Portuguese. Funds of up to $2/3m have been raised. GrowVC is running a partner programme in 70 US American campus’s which I suggest we will see evolve rapidly on a global scale.
This networks model enables and supports innovation and entrepreneurship at a global scale. This is in fact the economy of scope – the globally networked society in startup crowdfunding. Combine that with the changing landscape concerning the regulation of equity in the crowdfunding for startups… and we are midwives to a new and better way of in this instance, the funding of innovation and startup’s. The network as they say is mightier than the node.
1. There are truly more viable alternatives to funding.
2. These represent a literacy and design capability that is aware of new legal frameworks, new technologies (allowing the company to run lean), how to design around the needs of humanity as much as the supposed separate needs of business.
3. Could these insights be applied to other organizations? The answer is – yes.
Alan Moore is the author of No Straight Lines: Making Sense of Our Non-linear World and founder of SMLXL, a strategy consultancy advicing some of the worlds larges organizations in how to improve their culture, such as HP, Sony, CocaCola, Walt Disney & H&M. He is an expert in turning complex situations into actionable guidelines – and is a rare contributor at both Cambridge & Oxford University. In 5 tailored blog posts to Innovation Lab – Alan advices on how to strive in complexity.
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