A few weeks ago we put forward #CriticalMassWeekend, an idea for accelerating the funding process for startups. We are delighted to say it generated a lot of excitement and feedback, enough that we've decided to secure partners and launch a minimum viable product (MVP) version of the idea and see what we learn :). A future post will highlight our MVP.
This post is an iteration of the core concept: an event to help 100-1000 companies in a major metro region (like Greater Boston) go from application to signed check (for $10-$100k) in just a few days.
Problem
The most precious resource a founder and investors have is time. Waste too much of it and good companies can starve or amazing opportunities can be missed. Typical sources of wasted time are:
- Scheduling conflicts: Investor A is available, not B. Now A is on vacation while B is in town. When A gets back the Entrepreneur is at a tradeshow...
- Entrepreneurs rewriting their documents to meet the specific standards of each investor group.
- Many investors and entrepreneurs, unfamiliar with best practices in due diligence or lacking relevant domain expertise, get hung up on the wrong questions
- As there is no algorithm to select good companies from bad, investors end up having to waste time evaluating 10 poor-fit opportunities for every 1 good-fit in the applicant pool.
This wasted time forces investors and entrepreneurs to make a number of non-optimal choices. For instance, culling the applicant pool is primarily done by how well someone can pitch vs the intrinsic value of the opportunity (which is much harder to understand in a short time). Or decisions are made based on referrals. Both of these systems have their merits, but they have plenty of drawbacks too.
Meanwhile, there are a lot of people outside the traditional deal-review process who would enjoy helping evaluate opportunities... if only there was a practical way for them to get compensated for doing so.
Solution
My experience helping run the Silvertip Awards for the Angel Capital Association showed it may be possible to create a funding process that could take an seed-stage entrepreneur from application to a check in a few days without sacrificing on due diligence quality.
It would have to...
- Save everyone time by having investors publish their profiles in a highly searchable directory. When ventures apply they must specifically apply to 1-3 investors from that directory who have relevant domain expertise.
- Save investors time by having initial screening and significant due diligence data acquisition handled by a crowd of motivated students and non-contestant entrepreneurs using proven crowdsourcing technologies and processes.
- Save entrepreneurs time by making the application form simple super-simple. Get their contact info, maybe an elevator pitch, and invite them to upload whatever documents they already have handy.
- Remove scheduling conflicts by bringing investors and entrepreneurs into the same physical space for 1-2 consecutive days for intense, structured interactions. Make sure it's fun and engaging :).
- Streamline due diligence by providing all investors and entrepreneurs a standardized due diligence process based on industry best practices and with seasoned facilitators at hand. Likewise use a standardized, published term sheet template.
- Recruit the crowd of students and non-contestant entrepreneurs by offering the currencies they most desire: education, reputation, and introductions. Participation gives them an inside look at how startup investments are made. Top performers are given privileged access to the later stages of the process, publicly recognized, and build relationships with the top investors and entrepreneurs.
Possible Implementation
Day 0 (application & orientation): Teams apply using a standardized, super-simple application form. Meanwhile, the crowd of students (undergrad, MBA, and PhD candidates) and non-contestant entrepreneurs recruited from area colleges gather in-person for an orientation session.
Day 1 (pre-screening):
- The crowd gathers in person to go through a series of intensive, structured activities using a crowdsourcing technology to filter down the applicant pool to a manageable number. Entrepreneurs participate in person.
Day 2 (screening):
- Investors arrive for a brief, in-person orientation.
- Investors each review the ventures. The process asks investors to start with ventures that specifically applied to them and that passed through the crowd's filter. Investors will have access to presentation videos of the teams selected by the crowd (recorded the prior day so that entrepreneurs do not need to record it separately) and the due diligence materials generated by the crowd.
- A series of breakout sessions allows investors to personally meet the ventures they find most interesting. Crowd members are allowed to spectate, conduct their own due diligence (online), and post their findings to the crowdsourcing platform.
- Each investor picks one venture to conduct due diligence on (done in concert with all other investors interested in that same venture). All investors interested in a given venture meet to assemble a list of high-priority due diligence questions, which is then provided to the entrepreneurs.
- The day has breaks to allow all attendees to reconnect with the outside world, network, and relax.
- The day also features portions where investors and entrepreneurs are segregated and provided specific content to help them continue the process efficiently (and give feedback to the event organizers).
Day 3 (due diligence):
- Due diligence teams meet in-person with their ventures through a series of structured, focused meetings that leverage the best practices processes and are overseen by experienced facilitators.
- Top performing crowd members, after signing NDAs, are invited to spectate and - at investor request - participate as a part of the due diligence team.
- The day has breaks to allow all attendees to reconnect with the outside world, network, and relax.
- The day also features portions where investors and entrepreneurs are segregated and provided specific content to help them continue the process efficiently (and give feedback to the event organizers).
- The day ends in an "awards ceremony" where Investments are declared and awards to top-performing crowd-members are handed out. It should be a festive celebration. Drinks a must!
