• Grow VC launches, aiming to become the Kiva for tech startups

    Monday, February 15th, 2010

    Mike Butcher is the European Editor for TechCrunch. A former grunge rock drummer, he became a long time journalist, and has since written for UK national newspapers and magazines including The Financial Times, The Guardian, The Times, The Daily Telegraph and The New Statesman. Mike is also a co-founder and shareholder of TechHub, a co-working space/service/community with several locations... → Learn More

    Kiva is p2p-lending site that facilitates loans between lenders in wealthy countries and entrepreneurs in developing countries. Now a new startup aims to bring a simialr model to startups in the developed world but with an investment focus. The idea here is to fix the current inefficiencies of private seed funding for web and mobile companies, especially in markets outside of the hothouse that is Silicon Valley (i.e. Europe and Asia).

    Grow VC is a new community funding model for technology startups. Here’s how it works: Grow VC will pool 75 per cent of membership fees into a community fund that gets invested back into ‘promising startups’ which are members of the platform. The fund is managed by Grow VC but all the investment decisions are left to members who determine how to invest their portion of the fund into other startup companies that they feel have the most potential. The most successful decision makers get financially rewarded when the community fund begins earning a return on investment. So, if you promote the best companies you make moola.

    Joining Grow VC, and the basic features such as building a person profile, are free. Premium features come with subscriptions ranging from $20 to $140 per month, depending on how much money the startup company is seeking or how much the investor is looking to invest. For unlimited service investments, the monthly subscription fee is $90 per month. The fund is aimed at startups that need $10,000 to $1 million USD.

    The service claims to include the tools needed for building a startup from the ground up, to getting funding at the seed level. Yes, that’s quite a claim, but it’ll takle a few startups to kick the tyres to see if this platform holds up. There are other playing in this area, such as the recent Sprouter.com but Grow VC is possibly the most ambitious I’ve seen to date.

    The list of features it has includes: introducing startups to investors, experts and other entrepreneurs; helping them discover common interests and a members leaderboard. The platform is patent-pending.

    It’s now been in public beta for the last few months and has reached 700 registered users from within the startup and investment communities.

    Grow VC cofounder and CEO Valto Loikkanen says its model gets startups acquainted “with the entire investment process… our success is dependent on the success of other startups, investors and experts in ourcommunity.”

    Cofounder and chairman Jouko Ahvenainen rightly points out that “Early phase funding requires new solutions. VC’s are moving their focus to more mature companies, and LP’s are decreasing investments in VC funds. Entrepreneurs want to have more competition and transparency in the funding market, and business angels require better tools to find good startups and for easier dealmaking.”

    That’s fair comment, that is exactly what is going on right now. The question is is whether Grow VC is the right model. I guess we’re about to find out.

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    • Observant

      Look at their logo. The part in red is a middle finger “_|_”.

    • A.M

      yep , This logo is a little bit daring !

    • http://webtrendsng.com/ Possicon

      I really wanna know, will this service be available to African startups? There are hundreds of creative startups down their!

    • http://www.kutro.com Wayne

      Simply brilliant. This company is making a major attempt to solve a very serious problem and that is creating new innovative ways to obtain funding for start ups. This is the kind of stuff that we all should be about, thinking outside the box to solve everyday problems. There business model is most interesting to me and I will use this service as a start up needing funding. Congrats guys for thinking of something to assist and help the start ups who may not get initial funding from the big VC’s. In fact this idea also removes some of the barriers to entry to the world of funding for start ups. I really think there concept can help level the playing field for start ups seeking seed capital and beyond.

    • http://www.meebee.com JD

      Good to see more players in this field helping startups achieve their missions. I look fwd to them building a strong portfolio of startups.

      Am curious about valuations and % ownership sought for deals they will fund in their stated $10K-$1m range.

    • Jason R

      The membership fees are way to steep for people looking to be funders. I would think if I am offering to fund people which is what would help the website grow (as there are typically more startups than their are funders on sites like that. I would think they would have a lower fees for funders. If I have to pay such a large fee to be able to help a startup out than I will be funding a smaller amount. Or just go to Microfund so I can invest more $$ since I don’t have to pay such a large fee for the privlage of being a funder

    • http://www.kirstenwinkler.com Kirsten Winkler

      Really good idea and much needed. I hope there are enough risk takers on both sides to give this service a try.

    • http://www.investiere.ch/en Steffen Wagner

      I agree with the author: the question is whether growvc is the right model.

      Already some weeks ago, our team launched a similar (“crowdfunding”) yet very different startup investment service: check out investiere.ch (http://www.investiere.ch/en)

      Main differences to growvc are:
      1. direct investments: no fund structure or other middle men between investors and entrepreneurs
      2. 100% of investor money goes into the startup(s) the investor chooses
      3. Open to all innovative businesses (no limitation to web 2.0 startups)
      4. Preselection of startups based on professional due diligence
      5. Special focus on the people behind the concepts: e.g. video clips on entrepreneurs

      Regarding growvc, let me add that I am very glad that there’s one more kid on the block trying to find solutions to close the SME early stage financing gap. So, all the best – also for your approach!

      Steffen

    • sp

      This is great, We are always happy to see startups that help startups. that is why we also launched http://sproutpitch.com few weeks ago to give fresh life to the now almost abandoned Elevator pitch videos section of TC.

    • http://in.linkedin.com/in/svenugopal Venugopal

      Hi, Grow VC Team,

      Congrats on launching this model of funding the startups. We need more and more creative ways of funding early stage companies.

      Hi Steffen,

      Went thru your website. I’m curious to know how does your model work ?

      Pls get in touch with me at venugopal.sathya@gmail.com

      Cheers,

      Venugopal.

    • http://www.investiere.ch/en Steffen Wagner

      Hi Venugopal

      Thanks for your interest!

      Our model works in a way that small investors directly invest equity capital and thus become real owners of the startups they invest in. This also implies that investors have all information rights and adequate possibilities to influence management decisions.

      Minimal investments are roughly 5k USD and we have three standard legal models under Swiss law supporting an adequate balance of power between entrepreneurs and small investors.

      Investors from outside of Switzerland are most welcome – we will soon publish a few missing English documents on the investment models.

      All the best,
      Steffen

    • http://@jesperbergmann Jesper Bergmann

      It seems like an excellent idea and I hope they succedd.
      However if the costs are 25% of the investment it seems like a pretty poor investment from a financial return perspective, you would essentially need a 33% return just to break even, so I think that will keep a lot of people away.

    • http://webtrendsng.com/ Possicon

      @Steffen Wagner
      I asked if your service includes Africa or if there is any term as regard the region.

    • http://www.investiere.ch/en Steffen Wagner

      I know from personal experience that there are plenty of great business opportunities in Africa. However mid-term, http://www.investiere.ch/en will have to focus on European startups and SMEs.

      Best,
      Steffen

    • jon

      This is an awful idea.

      First, I don’t know what the laws are in Europe regarding accredited investors, but I’m pretty sure this would be illegal to sell to “small investors” in the US.

      Second, the 25% fee they charge for the “costs of running the service” is absolute robbery. How much do venture capital firms charge for management fees – 2%? How much do mutual funds charge – 0.5%? 1%? Even hedge funds only charge 2%, and then ask for 20% of the profits *profits.* If these guys are taking out 25% of the pool even before it is invested, that means the portfolio has to go up 34% just to break even!

      Third, according to their comic strip, only the “top ranked members” and the people who run the company get paid returns – how do they define a “top ranked member?” This means that all of the non-top ranked members have been paying these large subscription fees all along and will not get ANY money back. Pretty ridiculous.

      If you want to see an innovative community-type VC idea, look at what First Round Capital is doing where the companies get to give up some of their equity in exchange for everyone else’s so that they’re in it together.

    • http://ptechnorati.blogspot.com Paramendra Bhagat

      This fund will do really well. Just like Kiva has been doing really well. Money needs to go to ventures like Kiva and Grow VC instead of real estate bubbles.

    • http://www.dumblittleblogger.com Vishal Sanjay

      We are seeing a lot of such sites, they can be of great resource for the community and entrepreneurs.

    • http://www.GrouperEye.com Ted

      There seems to be a ton of financial details to work out. But, this is a great idea. More groups need enough funding to get their product out there and angel investing is becoming more cool.

    • whatever

      How is this not a pyramid scheme?

    • Chris

      It does sound like a great idea. But as someone commented earlier, it should not be restricted to Internet start-ups but to any small business.

      Also, business should have the option to receive funds in the form of a loan rather than an equity stake. It would work out better on both sides. The founders do not dilute equity and investors get a more immediate return on investment. That is more closely the model of Kiva and other microfinance plays.

    • whatever

      This is a classic pyramid scheme.

    • RJ

      Constructive criticism:

      The logo is terrible and as stated before, looks like someone is giving you the bird. Secondly, some of the website copy is amateurish and extremely unprofessional. Example below.

      “Startups are the “Rock Stars” of the web, that are working on the next great thing to change the world as we see it, and are looking for early funding to get their project of the ground, or to move to the next level.”

      The poor grammar and use of the term “Rock Stars” makes a mockery of the whole service if you ask me – bearing in mind what they’re trying to achieve. The author has been reading far too much Techcrunch!

    • http://aleatory.clientsideweb.net/ rutherford

      Crowd-sourcing funding was inevitable & they’ve created an interesting business model out of it.

      The complete concept is quite complicated and still a little hazy – how exactly are terms negotiated?

    • LOL

      LOL… no comment

    • http://www.growvc.com valto

      “Am curious about valuations and % ownership sought for deals they will fund in their stated $10K-$1m range.”

      Like in similar situation outside in our service, it is free market where valuations and % are freely decided by the parties involved. We have no say in this.

    • http://www.growvc.com valto

      25% fee is only from “community fund” model side. From direct investments made by funders to startups and potential ROI from those, there is no fee at all.

    • http://www.growvc.com valto

      Steffen, nice to meet another fellow entrepreneur helping others.

      Just want to clarify some of your points:

      “1. direct investments: no fund structure or other middle men between investors and entrepreneurs”

      -> in our model there is direct investments available to funders and “community fund” where everyone can participate and that can make finding interesting direct investment opportunities easier.

      “2. 100% of investor money goes into the startup(s) the investor chooses”

      -> Same in Grow VC. Nothing is taken from the investment money when funders make direct investments. Community fund is build from membership fees to have access to tools, these fees are less than most of the membership fees in LinkedIn.

      “3. Open to all innovative businesses (no limitation to web 2.0 startups)”

      -> for now we want to limit the service for business models that can be very cost effective to build with potentially high upside and good/fast scalability and where “old models don’t work so well”

      “4. Preselection on startups based on professional due diligence”

      -> everyone free to do DD as they feel most comfortable?

      “5. Special focus on the people behind the concepts: e.g. video clips on entrepreneurs”

      -> no limitations of what material startups want to present

      One question to you, what is your business model? I.E. How does your service make money?

    • http://www.growvc.com valto

      Only sophisticated investors are allowed to make direct investments. Others can participate via community fund were those are not direct investments.

      Nothing is taken from the investment money when funders make direct investments. Community fund is build from membership fees to have access to tools; these fees are less than most of the membership fees in LinkedIn.

      Top ranked members are calculated based on two merits:

      1. being the first ones to find interesting startups in the service, first ones to make selections on behalf the community fund to startups that start to gain momentum in the service and eventually get funded.

      2. how much they believed to that startup compared to other selections (portion of their allocated budget from the community fund).

      We also think that First Round Capital model is good and a move to right direction.

    • http://www.growvc.com valto

      thanks.

      to your comment:

      “The complete concept is quite complicated and still a little hazy – how exactly are terms negotiated?”

      While we provide a platform and tools to help manage the funding process, we are not trying to take anything away or restrict things. So any old ways are ok as well (real meetings, phone, etc.), but naturally we province tools for commuting on terms etc.

      For community fund investments the term sheet is provided by Grow VC. There terms are openly available and free to comment. Also those will be changed/updated on time to time based on member’s feedback.

    • http://www.sautot.com Christophe Sautot

      Are there any other websites that allow you to invest in startups? What competition does this company have?

    • Paul

      I am curious of it myself when I read the article about the model. In the US, the SEC is very strict about accredited investors. I hope the SEC takes a hard look at all these companies out there, trying to entice American investors in this scheme. Otherwise, it could turn out to be another Madoff scheme.

    • http://favit.com/marfi Martin

      They will have to work on their mail server, did not get the confirmation mail on my gmail and probably 30 mins passed.

    • tony

      By not charging funders, that would compromise the whole system, allowing for people to vote for their own startups. This is geared toward people who are serious, and if you have the money to fund 10M worth of seed capital, what is $50/month?

    • http://twitter.com/udeme @udeme

      There are definitely enough risk takers for the service to take off. What will sustain it, though, will depend on the models they have in place and hoe efficient they are. Democratized investing isn’t new, markets today are based on it, what’s intriguing is this trend of using the web to create OTC markets..

    • Geoffry

      I think this is a brilliant idea, not just for companies being funded but for ‘wannabe’ Investors. You should be able to figure out if you’re a savvy investor or just pissing your money away. Will definitely be keeping an eye out on you guys, keep up the good work.

    • http://www.investiere.ch/en Steffen Wagner

      Hi Valto

      Thanks for your clarifications and the question on our business model.

      As long as investiere.ch is in public beta, we charge the capital-seeking company a 5% success-based fee on capital raised. You’ll find more detail here:
      http://www.investiere.ch/en/content/project-and-pricing

      Our long-term business model accounts for an annual freemium fee on the investor side to get unlimited access to all investment opportunities (instead of just a subset).

      growvc and investiere.ch both share the focus on business models that are “cost effective to build with potentially high upside and good/fast scalability”. We strongly believe, however, that there are other innovative startups besides web2.0 that meet this criteria – have a look at our current portfolio:
      http://www.investiere.ch/en/companies

      All the best!
      Steffen

    • http://smlxtralarge.com/2010/02/16/grow-vc-the-kiva-of-tech-start-ups/ Grow VC the Kiva of tech start ups | SMLXL – Engagement Marketing and Communication principles from Alan Moore

      [...] Mike Butcher writes @techCrunch [...]

    • http://www.web2null.de/grow-vc Web 2.0 Sammelalbum – Web2Null – Grow VC

      [...] Die User investieren Geld in interessante Projekte und verfolgen das Wachstum. growvc.com via: TechCrunch "Grow VC" bookmarken oder [...]

    • ashley kristofferson

      Wait. ” Grow VC will pool 75 per cent of membership fees into a community fund that gets invested back into ‘promising startups’ which are members of the platform. ”

      What happens to the remaining 25%? Does this go to the GPs who can then take their pound of flesh of assets under management?

      If a startup does pay a monthly subscription does that get refunded if they do not get investors or alternately hit the company out of the ballpark? There are too many questions that Grow VC leaves unanswered.

    • http://www.growvc.com/blog/2010/02/what-stage-should-startup-proposal-be-to-post-it-to-grow-vc/ What stage should Startup proposal be, to post it to Grow VC? | Grow VC > Blog

      [...] that the long awaited core model is out, we are working on collecting questions and feedback from various blogs, emails etc. and are going [...]

    • http://www.campbelllawgroup.com Bruce Campbell

      Interesting idea, but doesn’t seem to be the “Kiva of start ups.” With Kiva, truly anyone can support an entreprenuer. With Grow VC, as far as I can tell, participation as a “funder” is limited to accredited investors — at least in the U.S.

    • http://www.growvc.com valto

      thanks. in deed the idea is that you can grow as a startup and/or as an investor, depending on your role.

    • http://www.growvc.com valto

      thanks.

      to be able to do direct investments (ie. register for funder role), will depend on the laws of the country from where the members is coming from. In US that does mean accredited investors.

      but anyone that subscribes their own startup or expert/funder role can participate via the community fund model, where 75% of the subscription fees is pooled to into community fund and also be rewarded if the community fund makes ROI.

      each member will get equivalent of that 75% as their own budget to decide to what startups the community fund should invested to.

      these are not direct investments, but money that grow vc manages and pools to fund, letting members decide where it should be invested and then rewards members for good decisions.

    • http://www.growvc.com/blog/2010/02/grow-vc-model-in-full-detail/ Grow VC model in full detail | Grow VC > Blog

      [...] = 'growvc'; It’s now been 10 days since the launch of our community fund model and we have been following the market response very closely. Overall the feedback have been [...]

    • http://www.growvc.com/blog/2010/02/grow-vc-market-position/ What is our market position? | Grow VC > Blog

      [...] a new player is entering the markets, there becomes a need to clarify “their market position”, ie. to try and figure out to [...]

    • http://www.best-practice-business.de/blog/?p=13285 www.best-practice-business.de/blog » GrowVC: Crowdfunding-Plattform für Technologie-StartUps

      [...] bei techcrunch-europe « MyMicroCredit.org: Kiva bekommt Konkurrenz aus Österreich [...]

    • http://www.growvc.com/blog/2010/03/becoming-an-entrepreneur-the-matrix-analogy/ Becoming an entrepreneur – The Matrix Analogy | Grow VC > Blog

      [...] – Now that we have published our core model, you can see that we think there can be a new, more efficient and meaningful way for early stage funding, that can help enable more startups that are seeing things “the new way” in what ever [...]

    • http://www.m2mmarketplace.com/blog/2010/04/grow-vc-launches-aiming-to-become-the-kiva-for-tech-startups/ Grow VC launches, aiming to become the Kiva for tech startups | M2M Marketplace
    • http://smlxtralarge.com/2010/05/13/entrepreneurs-get-networked-up-to-and-across-each-other/ Entrepreneurs get networked up to and across each other | SMLXL – Engagement Marketing and Communication principles from Alan Moore

      [...] Some 25% of Grow VC users are in the US, 11% in the UK and 7% in India.TechCrunch called it the Kiva of startups (more here). The total capital raised through the site so far is [...]

    • http://www.fronmark.com/2010/05/20/grow-vc-the-new-crowdfunding-tool/ Martin Frönmark – Web, Startup and Technology Enthusiast » Blog Archive » Grow VC – the new crowdfunding tool

      [...] “Grow VC launches, aiming to become the Kiva for tech startups” BBC News: “the first global crowdfunding tool for web and mobile start-ups” Share and [...]

    • szklarca

      An early democratizer Sprowtt just hit the dead pool after making a big initial news splash a year ago. Is the growVC model any different in essence?

    • http://excapite.wordpress.com/2010/06/09/disrupting-the-wisdom-of-the-investment-crowd/ Disrupting the wisdom of the investment crowd « excapite

      [...] TechCrunch ran a profile piece on Grow VC back in February. In that comprehensive review Mike Butcher explained how Grow VC manages the investments, but the community decides where the money should be invested. [...]

    • http://blog.thedolectures.co.uk/2010/08/everyman-an-angel/ Everyman An Angel | The Do Village

      [...] Mike Butcher writes @techCrunch [...]

    • http://e27.sg/2010/10/21/crowdfunding-platform-growvc-launches-in-china/ Crowdfunding platform GrowVC launches in China | e27

      [...] GrowVC helps startups to secure funding up to US$1 million. According to its service statistics from their site, they have 84 active startups and approximately $18 million in capital available. Though we haven’t heard of breakout successes from this platform yet, it remains to be seen if GrowVC can truly be a Kiva for startups. [...]

    • Roger

      Jon, I totally agree with your criticism.

      Grow VC is doing in 2010 what IdeMama Club was doing in 2004.

      I think it’s http://IdeaMamaClub.com, but the portal is not there anymore… just a dummy page… I’ve heard that they decided to redesign the system and relaunch a new product next year. Really look forward to it. I was a member, one of thousands, and it was an AMAZING concept.

      But they faced challenges with the regulatory issues – dealing with money of non-accredited investors, scalability etc.

      But the concept was way, way better than what GrowVC is trying to do.

    • http://www.growvc.com/blog/2010/03/27/becoming-an-entrepreneur-the-matrix-analogy/ Becoming an entrepreneur – The Matrix Analogy | Grow VC > Blog

      [...] – Now that we have published our core model, you can see that we think there can be a new, more efficient and meaningful way for early stage funding, that can help enable more startups that are seeing things the “new way” in whatever [...]

    • http://www.growvc.com/blog/2010/03/09/podcast-grow-vc-presentation-at-sun-sand-and-startups-event/ Podcast: Grow VC presentation at Sun, Sand and Startups event | Grow VC > Blog

      [...] Thursday the 18th of Feb just few days after our launch, the second triple-s/Founders Lounge co-production by Sun, Sand and Startups group took place at [...]

    • http://www.growvc.com/blog/2010/02/26/grow-vc-model-in-full-detail/ Grow VC model in full detail | Grow VC > Blog

      [...] now been 10 days since the launch of our community fund model and we have been following the market response very closely. Overall the feedback has been positive [...]

    • http://stopfromsnoring.org josh

      I think that there are plenty of other sites you can look for, just type in google…

    • http://stopfromsnoring.org josh

      I think that there are plenty of other sites you can look for, just type in google…

    • http://stopsnores.org Terry

      yeah udeme I agree with you on that with 100%!

    • http://www.bestincomesource.net/2011/let-the-crowd-buy-equity-in-private-companies/ Let the Crowd Buy Equity in Private Companies | Best Income Source

      [...] in which membership fees are pooled to invest in entrepreneurs raising money. But Mike Butcher, writing last year on TechCrunch, says this approach leaves investors exposed if the portfolio company [...]

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      [...] in which membership fees are pooled to invest in entrepreneurs raising money. But Mike Butcher, writing last year on TechCrunch, says this approach leaves investors exposed if the portfolio company [...]

    • Munya

      Mr Possicon,
      You can contact me at munya@growvc.com. I’m focused on growing our portfolio and startups in Africa. Regards
       

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