Starting a MicroFund: Why Mini-Funds Will Be the Way of the Future
We get a decent amount of calls from folks looking to start a private equity fund or build their business by raising private capital. But unlike the world of the 1980’s when large PE groups first starting cropping up (Bain, KKR, Blackstone et. al) today’s businesses require less capital than ever before and can often reach significant scale with a smaller input. This creates a win/win for both founders and investors alike. Founders don’t need to give up quite so much equity to make a run at a really good idea. Investors are not in a deal for a massive sum of money and thus they can bear less risk across a much more broad portfolio of private businesses. Here’s where some of today’s capital democratization folks really win.
- Crowdfunding. With sites like Kickstarter and the like you’re able to get PAID before you even have to buy raw materials to make whatever it is you plan to sell. On the software or services side, you can now get “paid forward” to perform a meaningful service without incurring the risk of loss because you lack capital. The whole idea is a mind-blowing game changer when you really look at it.
- Technology has been democratized as well. When Jeff Bezos started Amazon in his Seattle-based home in the mid 1990’s, the company needed to invest heavily in servers to ensure customers and potential customers could have access to the site on a 24×7 basis. Today, we use Amazon’s AWS pay-as-you-go model to do the same thing, only thousands cheaper. Whether you’re creating an application to service clients or running an ecommerce site on co-located servers, it’s now cheaper, faster and more efficient than ever.
- Reach the masses with a mouse. When Bain started Staples they probably didn’t envision a day when mouse clicks would gobble up bricks and mortar. To
In today’s world, it will most likely be a combination of the business idea, the business model and the business team that wins. But with how small things need to be in today’s world, the business model is almost the most important thing to understand from a finance angle. The models have completely changed. We operate in a world where someone with an internet connection can make as much revenue and income as someone with a massive start-up fund.
Great ideas and great execution require much less. We’ve put very little–in comparable historical terms–into many of the projects we’ve personally worked on and funded in the last couple of years and we’ve seen great dividends come back from such projects. As we move forward, job creation will need to come from big ideas, small capital and heady entrepreneurs.
Talk to us about microfunding on projects.
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