I’ve written frequently about peer-to-peer lending, or “microfinancing” and the possibilities this emerging trend might hold for design-related startup businesses. I’ve also discussed Angel Investing in my posts about more traditional funding options. So, what happens when you combine these two concepts? Daniel Weinstein, Principal of Innovance Consulting wrote a very enlightening post on his blog recently entitled “Peer 2 Peer Angel Investing: The Future of Funding Startups?” in which he discusses this convergence and the opportunities it might offer—specifically for business concepts with a social impact mission.
Weinstein makes an important observation that “there are few entities willing to make a large investment in a company without the potential of a large return on investment.” In other words, many social impact concepts are simply not in the running for traditional startup funding. Weintstein continues, “But there are lots of people interested in making social change, and in backing it financially.” Most of us contribute to charitable organizations that we feel can make a positive change in the world, so the idea of channeling our giving toward a more focused goal is really not that radical.
The important distinction in the peer-to-peer approach that Weinstein lays out is that it is an investment rather than a donation. The expectation in this scenario is that the donor will make a return on their investment, hence the possibility of larger scale contributions and even equity deals under this model.
It’s great to see the topic of alternative funding being discussed in other forums. I believe strongly that entrepreneurs from the creative world need to be more savvy about how to fund our start up concepts in order to make them viable on a larger scale. The cross-pollination of peer-to-peer and angel investing is certainly worth tracking.
(note: The peer-to-peer lending category is evolving at a rapid pace, and there has been lot’s of activity—good and bad—in the recent past. Do your research before jumping into this pool!)