Micro-funding for startups: a new idea

Kevin Burton is raising money for his new startup (tailrank) in a pretty innovative way: he’s selling “golden tickets” that, besides letting you beta test his software (a “pro” account without adds for 6 months), also come with a public thank-you link on his blog. Scoble bought a ticket, and so did Dave Winer.


In the photos, it sure looks like he’s having a good time collecting 20$ contributions! The inevitable supr.c.ilio.us parody has already surfaced.
This is all very cool, it’s a natural democratization of the startup funding process. With the amount needed to start a company so small, angel investors have displaced VCs. Now angels may (in some cases) be displaced by community members! Kevin has definitely stumbled onto something here.
However, I’m not personally in need of a tailrank account at the moment (I’m not sure enough what tailrank does yet, and why I would need it.), so I haven’t yet shelled out for a “golden ticket”. But Kevin’s golden ticket idea gave me an idea, an idea that SOMEBODY should try.
What if startups offered bite-sized investments? Say you buy a “platinum ticket” in tailrank for $100. The ticket would qualify you for a 4-1 payoff in the event of a “liquidity event” (defined as the company being acquired or going public). The contract would be very simple: you wouldn’t own a percentage of the company, the company would simply have an obligation to pay you off under certain conditions.
I think this might work, especially at the low dollar amounts (10-20 thousand dollars) needed to start a startup these days. People enjoy “playing along at home”, and this would give them a clear way to participate in the (risky) excitement of web 2.0. The odds are probably a little worse than Vegas, but it’s certainly more interesting. The early investors would have a vested interest in publicizing the company (through their own blogs and interactions with other community members), so it would also be a great way to solve the marketing problem small startups have (how do I get people to notice me).
Thoughts?

2 thoughts on “Micro-funding for startups: a new idea

  1. Kevin Burton October 26, 2005 / 1:46 pm

    The legal issues with invidividual investors is a bit difficult. It’s amazing what’s illegal. Totally unamerican if you ask me. I should be able to invest in a startup if I have the $ and not have the govt dictate where and when I can’t spend my money.
    Anyway.. if its legal I might do it if it works 🙂

  2. Jonathan Boutelle October 26, 2005 / 2:22 pm

    The key aspect that might make it legally simple is framing it not as an investment (buying a piece of the company). It is simply a loan that is only to be payed off (at a very high return) under certain conditions.
    Any legal eagles out there who can tell me (and Kevin) if this would be doable?

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