I’ve recently been watching Paradise or Bust, it’s a documentary following the first year of TribeWanted.com. Tribewanted describes itself as a unique community tourism project that is simultaneously based on Vorovoro Island, Fiji and online. The Tribe (community) are working to build a simple sustainable village on a Fujian island. Members of the tribe each spend between one and twelve weeks on the island working on projects, which projects will be worked on is decided by the Tribe as a whole, by voting on the tribe’s website.
It’s a fascinating idea which I’ve followed on and off over the last year thanks to the 10 Yeti’s blog (their PR agency). Because of it, and other projects that involve a community such as MyFootballClub I’ve been wondering what other businesses could be created, changed or re-invented to take advantage of communities or to apply the wisdom of crowds.
As I’m also a fan of Dragons’ Den and I often hear others express the opinion that the Dragons are wrong to have passed over a particular investment (and sometimes I even agree) it occurred to me that a similar model might work for Venture Capital. If say 5,000 people all chipped in £100 you’d have a fund of £500,000 to invest. As the typical Business Angel investment is in the region of £50,000 that would allow the fund to make around 10 investments. If the “members” all regularly put in £10 per month the fund could make between 10 and 12 investments per year. The profit (if any) generated when the fund exited from an investment would then be split equally between the members, hopefully making the members a positive return on their investment.
Instead of pitching to one or two Venture Capitalists at a time entrepreneurs would pitch on video or to an interviewer or two which would be recorded, the community would then review the video and post questions which the entrepreneurs would answer and eventually (after say a week) the community would vote on whether to offer funding or not.
If the wisdom of crowds is true, then the fund should be better at picking winners than an individual Business Angel or Venture Capitalist and should therefore be able to generate a higher return. On top of that the fact that the business gains investment from thousands of people should give it a readymade customer/fan base who can buy from it and/or promote it far and wide.
What do you think, could this be a viable way of funding new businesses? Would you invest in such a fund?
This blog is about business opportunities and ideas that I spot, think of or hear about and think are useful and interesting. It is intended to provide ideas and inspriation for you to help you find the right business idea for you to then grow it into a successful business.
I would definitely be interested - please let me know whts happening.
Dawood,
It’s not something I’m going to do, it’s just an idea for a business. Although if anyone is interested in pursuing it I’d be happy to help where I can.
The phrase ‘too many cooks…’ could be applied to this. As an investor I would like to invest in a business I could add value to - how would a business cope if 100 business angels all wanted to add their ideas ?
Julian,
I agree most individual business angels would want to be adding value, however in this case I would not expect all the “investors” to have a business background. I would view it working more like a venture capital fund - the individual investors play no direct part – instead appointing a non-executive director(s) to the portfolio company to represent their interests.
Seems to me that this is a good idea, if we could overcome the too many cooks syndrome described by Julian. How about a member site that would allow A) A voting systems that would only fund the top n ideas and B) The appointment of a core team to manage the invested capital, also voted on by the funding membership?
The management process could be transparent to the membership with a clearly defined set of rules.
He’s doing it again with http://www.haveyougotthenerve.tv
I just signed up. Should be interesting.
Is this the same as a search fund?
Dawood,
No it’s not the same as a search fund. The idea is that entrepreneurs would approach the fund as if it was a business angel network. They would then pitch to the members just as they would pitch to any individual business angel.
Mark,
I don’t believe there is an issue of too many cooks based on what I’ve explained. The members would only be able to vote on whether to invest or not based on the pitch. The members would them appoint a non-exec to the board of the company to represent their interests - exactly the way venture capital funds already work.
Love your blog, and I think this sounds like a great idea. Peer-to-peer lending is also becoming increasingly popular, and I think this could benefit from that same basic idea (i.e. people putting money in and hoping to get some kind of a return back). Excuse my ignorance, but I always wonder how people go about starting things like this, which must surely require really excellent IT skills just to get a website set up in the first place?
Jon,
Thanks. Getting it started would require a lot of work, there are a number of issues to be resolved:
1) Legal issues relating to investments and share ownership.
2) Tax structure.
3) Recruitment and management of 5,000 small investors.
4) The business model.
I have answers for each issue, but it’s too much detail to go into here.
As you mention it would primarily need to be managed via the web and would need some IT infrastructure, but my background is in software (web) development so it’s something I’d be confident managing. Plus I have a good network of techies to call on to do the work.
I think this is a really exciting idea. The business model would need working through but it’s a great way to enable genuine entrepreneurs and share in the benefits of their success or learn the lessons from their, hopefully occasional, failures. I’d love to get involved in this!!
I would certainly be interested in this, if anyone wants to take it further please get in touch or keep me informed.
Simon
I have been following this blog with interest, noticeably because it is about tribewanted, a project which I created and I have now gone on to develop have you got the nerve? TV.
I came up with the idea for tribewanted because my mates were telling me that they use social networking sites in order to meet members of the opposite sex, which is all very well and good however it came to mind that there are people across the World with vasts amount of skills and experiences , could they be brought together online in order to do something positive in the real world.
This is something that I believe in big time. Yes there could be a too many cooks element, I dont think this means that it should be left all together. Apparently it took 1000 attempts to create the perfect lightblub. Although its in its infancy I believe in this crowd sourced model and its a case of getting it right, which I am in hot pursuit of!
Mark Bowness
http://www.haveyougotthenerve.tv
Mark,
Thanks for adding your thoughts. Making this happen is being looked into.
I look forward to following the progress of Have you got the nerve? TV.
Regards, John
I love this, and I’m giving it ago.
A restaurant is my stab at it, watch for updates - I’ll no doubt be pestering you for advice anyway
Darren,
Cool, lets us know how you get on.
Very interested in this too, would love to be involved!
Please let me know as things progress.
Sounds interesting would love to know if this pans out as I have been having thoughts along these lines for quite some time. Couldnt get past the offering shares to the public bit tho.
very nice idea.
what is the status of this project? is anything being realized?