Good news for startups based in Boston or Manhattan and seeking capital. Manhattan-based Spark Capital, based in Manhattan, which has invested in Twitter, Tumblr, Adap.tv, Boxee, to Veoh, to name a few, is starting to place money at the earliest stages through a new program called Start@Spark.
Spark Capital said it's starting this program because a lot of early-stage forms of funding have dried up. "Fewer angels are investing aggressively and many top tier institutional investors are turning their attention to their existing portfolios," according to its site. While there is a healthy population of large venture capital funds that invest $5-plus million in startups, there are many entrepreneurs who need modest sums, far below that amount.
So what's the criteria to apply?
Start@Spark is seeking companies that have clearly articulated a problem, have teams that are hungry, and with the tools to hit the ground running, and have a good sense of how they would utilize their capital to hit certain milestones. Spark is looking at the media, technology and entertainment sectors. And, it's also looking in the area of next-generation personal finance and applications that can leverage the iPhone, Android, gaming consoles, and Twitter.
What's Spark putting in?
The standard Start@Spark investment will take the form of a convertible loan of up to $250,000. The loan will convert to equity at the company's next round of financing at a 20% discount. Start@Spark would also retain the right to provide at least half of the financing of the next round.
(Image source: myhightechstartup.com)
It is unfortunate that an entrepreneurs idea is only as good as its funding. After four start ups, I am well aware of the value behind minimizing expenses and getting to market quickly before costs get in the way. However, If large scale ideas first need capital then an entrepreneur needs to move focus away from his core idea and figure out how to raise the minimal necessary funds. A young business will expend a disproportionate amount of time on learning all about how to first learn about how investments are structured, pitching their idea and then being evaluated by investment groups - rinse and repeat. In this down economy, VC and Angel firms are holding out on deals because they can win better terms by extending negotiations. By design, the entire process of raising capital slows innovation. 'I propose new open methods to remove the perceived risk aversion to investing in innovation.’ Clearly, the rate of innovation is rapidly increasing. Access to capital must proportionally ease. Otherwise, growth will be held captive by an innovation capital bottleneck and ideas will not be funded. The solution is to provide open tools and guidance used by entrepreneurs to sharing with capital investment firms to evaluate and manage risk. A new dawn of accelerated investment should do the following: 1. Allow investments to come from those who are not an Accredited Angel Investor as defined by the SEC in Rule 501(a) of Regulation D under Rule 144 of the Securities Act [either (a)net worth of $1,000,000 or (b) annual income of $200,000] The reason being, passionate people and young minds want to finance new ideas but this rule says that only 0.15% of the global population can invest this way. (World Wealth Report 2007 {http://www.capgemini.com/resources/thought_leadership/world_wealth_report_2007/} The solution here could be creating a new investment company with numerous share holders all voting on what opportunities to take. Risk is offset with a basket portfolio. Exposure is monitored because funding is cut if monthly or quarterly numbers are not met. 2. Provide 3rd party tools to monitor key performance metrics of investments. Audited elements of a business reduce the due diligence cycle needed by each investment firm, gear the company to think about moving their performance indicators up and to the right. Audits could be performed against accounting, all code from architecture and components through unit and user testing, business contracts to forecast future revenue. Each of these keeps entrepreneurs engaged in moving forward. The 3rd party will offer insight into how successful the business may be and how much money is needed. 3. Publish open courseware for learning the skills demanded by a business world constantly iterating. In principle, privacy will always be respected so that a young company only releases information to those trusted. Ideally, these points enhance open source problem solving and get us closer to open source execution. By opening up early stage capital, more ideas will get to the next level. Traditional investment groups will now compete out in the open against public attitudes. More accountability will be placed on fair terms and producing ideal results for the good of all rather than the profit of few. The formula for success will be understood by a greater audience and can be adopted for Internationalization. Beyond the hubs of innovation in Israel, Vancouver, Munich, Cape Town, Dublin, San Francisco and others, the aim is to provide access to all regardless of geographic location. Innovation should be born from ideas not elite regions of the globe. Increasing the rate of invested capital allows tomorrows entrepreneurs to focus on developing future technologies and the business models to monetize them. http://opencapital.tumblr.com