People who read this blog might be aware of ordinary forms of financing startups, such as Venture Capital. Rather famous Internet celebrities argue that to a certain extent the VC model is not quite adquate anymore. There is no more need for financing rounds (A rounds at least) in the millions for bootstrapped, tech-driven teams that rely on several well-connected brains and some matresses. As Paul Graham puts it
Moore’s law has made hardware cheap; open source has made software free; the web has made marketing and distribution free; and more powerful programming languages mean development teams can be smaller. These changes have pushed the cost of starting a startup down into the noise.
In the realm of these findings, assuming that the longer we observe the more correct they get, I’ve recently noticed some interesting, new and sometimes disruptive financing models out there. Incubators, such as my pals at i5invest, often being determined as a not viable startup financing and operating model, or HackFwd‘s “referrer model” can potentially close this gap. Seeing successful entrepreneurs turning into angel investors and having 100s, if not 1000s of new projects/startups every day, the timing for such funding approaches seems right.
HACKFWD
With major Buzz Lars Hinrichs recently launched HackFwd – a “pre-seed investment company looking to support Europe’s most passionate geeks“. Having a strong network throught his successful company XING, Hinrichs tries to free friggin good developers from their day jobs and help them launch tech companies. At large this isn’t anything new, but what makes it special is that this is basically the first time that such an endavour takes place in Europe. And that’s really good.
As Hinrichts points out in a beautiful Introduction Video to HackFwd, not a single Alexa Top 100 company came out of Europe. This, however, has multiple reasons. The utmost reason is, that Europe lacks, or has been lacking, a Startup and Venture scene. Companies are sold too early, failure is desicable and there’s no coherent and evolved investor scene, particularly angel investors. This is nothing new, yet it’s a major reason for the above. We are getting there and we are probably also going to be better than our US pals. Martin Varsavsky often pointed out reaons why starting a business in Europe is feasable.
What I’d like like to bring in is Hackfwd’s referal system. This is obviously already happening all the time – but below the line. It’s rather unlikely that you get funding by submitting your business plan to Sequoia’s public e-mail adress. People who know their shit, introduce founders and connect fellow investors. Now this has been iterated to a transparent model. Referrers take a 3% stake in the company, whereas Hackfwd takes a staggering 27% of your stock for 1 year of funding. Inequality and fairness ought to be discussed in another post.
HACKER ANGELS
A syndicate of renowned excellent programmers turned entrepreneurs and millionaires, a couple of days ago, announced a vague angel investor formation targeted towards individuals that are starting companies (Mostly US based as it seems now though) called Hacker Angels. As vague as their website is, as contemporary and up to date is their approach. Fuck business plans, decide individually, meet the team, see the product.
We’ll see how Hacker Angels is going to develop aside from its early buzz they got, due to the celebrity status of its founders. From the outside it’s, in a less organized way, targeting the same entrepreneurs as HackFwd is: Hackers and Techies. However having a great tech infrastructure and grea tech people on the team (c’mon – this is still a tech space we are all talking about), nobody should underestimate the power of good sales people, Marketing gurus and other business-related co-workers. Those are the guys who are eventually bringing in the money and that are turning a tech startup into a profitble company that might raise further rounds of funding and eventually ends up in some form of exit, be it a trade-sale or an IPO.
INITIAL FACTOR
Still unknown and secretly being developed Initial Factor is another interesting model for financing startups – at least what I’ve heard so far. Successful entrepreneurs, Angels and Product people teamed up to incubate, finance and help to exit companies.
Not really tech-driven, but a more Samwer-like approach that enables companies getting off the ground, growing and building a sustainable business throughout Europe. I haven’t heard any figures or facts regarding Initial Factor but it might be something Europe’s tech scene needs.
Seedcamp, Europe’s equivalent to Y Combinator, was a late, but first, step of moving into interesting financing models. Backed by some major VCs, well-connected individuals and therefore a good reputation among Euro Startups, they are taking a 8-10% stake in the company for a little more than what YC puts into the team.
We’ll see how those companies evolve over the years and which startups come out of them. An interesting development nevetheless.
At this point I’d also like to mention a great great article by the even greater Economist – An overview, a hymn and a cold and strategic look at Europe’s web scene.
