For us an entrepreneur is somebody with 2 major drivers:
- Drive to be independent: you want to work for yourself rather than for somebody else
- Drive to achieve: you want build a solution because there is a problem and nobody else seem to be able to fix it
If you just care about being independent, you are probably fit the category of "consultant", somebody with expertise but no special drive to create something out of nowhere or to follow through the complete cycle of designing, building, selling and implementing a solution. You are happy to add your value where it makes sense and let others deal with the bigger picture.
If you are an achiever with no special drive for independence, then you probably are in the "manager" category, somebody with expertise but happy to create things from within the safety of a corporation, with the help of a complete team to take care of the side of the business you are not comfortable with. You will drive a project throughout the lifecycle, but you need someone to be take the real risk of initiating or validating the effort.
We welcome anybody who fits this description.
The Entrepreneur Commons in itself is a social business, whose goal is to address an area of the economy where there is a real need today: Seed Financing.
Not everybody has "Friends and Family" with enough money to spare on a new venture, and not everybody fits within the very narrow set of requirements defined by VCs or Angel Investors:
VCs will tell you that they when they receive 1000 business plans, they look at 100 of them, then select 10, and then typically 1 will make it really big, while 3 will do so-so and the rest will die. This leaves out 990 entrepreneurs who may have a very viable business but do not have the capacity for generating a 10x return on the investment.
Angels typically don't have the financial wealth, nor the time, to spread their investment over a significant number of deals. Investing in less than 30 to 50 deals means that you are statistically playing the lottery, and they know it. Knowing this, they tend to pick tickets promising a big jackpots rather than just good businesses, which means that they go for the same "VC-fundable" companies, looking at the same 100 companies that VC look at.
This still leaves out 900 out of 1000 entrepreneurs, including very good viable businesses that are just not "sexy" enough. The four year survival rate for small businesses is 44%, varying from 38% in the information sector to 55% in the education and health services sector, so there is a lot of good businesses left after the VCs and Angels have taken their picks - in our case between 340 and 430 depending on how many of the 100 Angels looked at where chosen by them.
The Entrepreneur Commons aims to help these entrepreneurs that are being left out of the existing processes. This especially includes all the Social Entrepreneurs whose stated goal is to improve the community at large while generating profit only as a way to guarantee the sustainability of their project over the long term.
The model used to resolve this issue is inspired by 2 existing mechanisms that have proven to work in other parts of the world:
Microfinancing model - microloans to entrepreneurs organized in self-help groups, a model used in developing countries with an average default rate reported of 1% to 5%
Mutual Guarantee Funds - a model used in several countries in Europe since 1917, with loans using the mutual guarantee fund as collateral, the mutual guarantee fund representing typically 2% to 8% of the total amount of loans, with reported default rate at 1% to 5%.
In addition to the obvious need on the entrepreneur side, there is also an issue on the investor side: despite the flashy headlines, the reality is that many angel investors loose most of their money. But who brags about this? And while they will tell you that they do not really care since they only invest in early stage ventures what they call their "mad money", providing a mechanism for them to remain involved with entrepreneurs and early stage venture while making a good return is an attractive proposition.
The Entrepreneur Commons provides good returns for the risk taken, returns that can be benchmarked against market results.
The issue is even more critical for Social Investors who do not have a way today to differentiate a good investment from a bad investment: when investing in a Social Business, are you happy with a 3x return instead of a 10x return? Or are you happy if you get your money back? The issue is one of measurement: how do you measure, and value, impact versus financial returns.
The Entrepreneur Commons resolves this issue: success is when the entrepreneur pays the debt back, and if the business is helping the community at large everybody should be happy that they have contributed to moving the world in the right direction.
In addition to helping entrepreneurs and their investors, the Entrepreneur Commons resolves an issue which is systemic:
- It resolves the tension that equity transactions create, by removing the issue of having to force an exit at some point to allow the investors to cash out on their investment
- It simplifies the negotiations for seed investment by removing the need for establishing a value for the business when there is no data
- And most importantly, it moves the market away from being a competitive process where most are excluded and just a few are selected by a small team of money managers to receive investment into an inclusive process where all entrepreneurs are welcome to participate and the loans are spread based on who is selected by the group as being mature enough to deserve it. Instead of entrepreneurs fighting against each other and trying their luck in the many competitions (open or private) that are offering investment as a price for being selected, we offer entrepreneurs a model where they can focus on growing the business with whatever scarce resources they have and the help of their fellow entrepreneurs along the way.
The Entrepreneur Commons is a hybrid structure with 2 components:
- An Investment Fund, the typical investment fund structure with LPs who invest and a General Manager in charge of managing the investments. Investments are originally focused on providing seed capital to Entrepreneurs, with the difference from regular fund that investments are made through debt rather than equity, and loans are secured by a mutual guarantee fund which guarantees that everybody involved (investors and entrepreneurs) has a personal interest in the overall of the fund.
- A Not-for-profit, who is the General Manager for the Fund. The Not-for-profit provides a platform very similar in the concept to what is being done with Microfinance: the platform allows the facilitation of regular meetings between the entrepreneurs-members of the social network, who are organized in self-help teams of 5 to 10 entrepreneurs.
The platform is financed through membership fees, sponsorship, as well as a percentage (2%) of the money invested through loans. Since this structure is a not-for-profit, fees will be adjusted and any excess will be returned to members in the form of discount on membership fees.
Anybody can request to become a member of the Entrepreneur Commons as entrepreneur member with a project or facilitator member helping with the organization of the Commons. However access to loans is by invitation only, which means that you have to be voted in by a quorum of existing members involved with the fund, including borrower members and investor members .
The goal of the Entrepreneur Commons is to establish a blueprint
for seed financing that can then be reproduced anywhere in the world.
Various implementation can be local chapters of the Entrepreneur
Commons or local efforts that are related (as long as we agree on the
core concept of staying away from equity, to make money for investors
while retaining value for the entrepreneur).