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A former risk manager in the small-business space, Bill Clark says he has a "passion for start-ups." As a risk manager, he saw just how difficult it could be for a fledgling company to raise enough money to get itself off the ground. Finding angel investors is always an option, but finding the "right angels" can be a challenge, he says, and, as a small business, you usually need five to 10 of those investors to rustle up a sufficient amount of cash to get things moving in the right direction.
Then there's peer-to-peer lending--Prosper and Lending Club, for example. Those have benefits, but they sometimes don't raise as much capital as a company would like, and some of them--Lending Club, in particular--tend to be very discriminating, declining as much as 90% of the applications they receive. "I thought, 'What about a model that combines equity with peer-to-peer?'" said Clark in an interview. "I spoke to some lawyers and the SEC, and once I was convinced I had a good idea, I launched MicroVentures Marketplace."
That was last September, and Clark, CEO of MicroVentures, spent several months afterward getting the word out and building an investor base for his new online investment service. Last week, his efforts paid dividends: MicroVentures completed funding for its first three deals. Resources from 19 investors, totaling $100,000, were pooled for a company that develops an entertainment technology platform. (The name of the company, currently in a financial quiet period, is under wraps.)
For each of two other businesses, MicroVentures facilitated $25,000 investments, bringing the grand total for its first three deals to $150,000.
Typically, the businesses Clark works with are starting off with three to four people and are looking to raise anywhere from $100,000 to $500,000 in three to six months. Although these companies run the gamut in terms of the vertical spaces they play in, Clark said he's seeing a predominance of start-ups in application development, gaming, high tech, and social media.
"It works like this," Clark said. "The first thing we do when a business requests funding is to look at its business plan. We run their ideas by our investors to see what they think. If the investors see potential, we have to do what's called due diligence: We gather financial information, run background checks on company officers, look closely at the market the company's entering, and study the competition."
Clark said due diligence can take up to a week. If all systems are go and MicroVentures decides to take on a company as a client, the next step is to draw up a private placement memo, or PPM. This is an extensive undertaking, with the PPM running about 60 pages, Clark explained. Documents are made available to investors online, at the MicroVentures website, and interested parties can make their investments online as well--anywhere from $1,000 to $10,000. Investments of more than that can be made offline.
MicroVentures charges $100 to review a company's business plan and $250 for due diligence. If the target amount of capital is raised, MicroVentures gets 10%. By combining online peer-to-peer networking with a pooling model that allows investors to make smaller financial commitments than they typically could, MicroVentures is unfurling a viable alternative for small businesses and start-ups that need money. It's an enterprising idea that appears to be taking flight. Check it out at www.microventures.com.