kidmercury

There are plenty of ways I have of describing the vision I have for the business I'm building. I generally think the simplest and easiest thing to say is that the plan is to "build a bunch of niche online communities and then connect them all." Ning and SocialGo are examples of similar models, albeit on a fancier level, rather than "a dude in his apartment" level. As regular readers know I have created a bunch of communities, but the one I focus on now is my trading site.

Anyway, another way of describing what I'm working on is to simply call it a content fund -- a fund that invests in Internet publishers. I talked about this a while back on Albert's blog. In many ways, it's similar to the concept microfinance -- i.e. making lots of small investments, which I think will increasingly be the trend in Internet-based investing. So, with that i mind, below are some attributes I had in mind for building a successful microfinance fund:

1. First, props to TechStars and YCombinator -- I think they can be regarded as leaders here, blazing the trail. I know there are some equivalents in Europe and Asia, probably South America too. These firms are competitors/collaborators, the game is international for everyone, but especially in microfinance. And don't think Africa is out of the game, they are out of the game now because international monetary policy robs Africa more than anyone else (Africa spends 4X as much on debt repayment as on healthcare.....), but that game is coming to an end soon enough.

2. Structured education. Micro startup funds (like TechStars and YCombinator) won't just be investing money; they'll be investing an entire ecosystem of resources. As the ecosystem they invests grows larger, they'll have to invest in training entrepreneurs how to get the most out of their ecosystem. So it's not just about finding entrepreneurs, but rather finding those suited for a specific type of entrepreneurial path -- which the microfinance fund, because of its ecosystem, is well-positioned to deliver.

3. Standards. The economic explanation for why microfinance (i.e. smaller investments) is superior is based upon standards. For instance, if Company A and Company B need software developers with the same exact skill set, should they both hire developers independently? It will cost less if they share the development costs. Certainly if an Investor is investing in Company A and Company B, they would rather see them share that development cost.

And this is the economic logic that will drive microfinance: finding shared costs (i.e. amortization). To do this, investors will need to find standards that allow costs to be shared. (i.e. A microfinance fund that helps all of its portfolio make facebook applications -- from this perspective, the need to make a Facebook app is the standard that is contributing to the economic efficiency of the microfinance fund). Because of this I think there are lots of opportunities for platforms like Facebook and Twitter, which are essentially development standards that have attacted a community, to launch their own microfinance funds, investing in applications built on top of them, and then acquiring the best of those applications and integrating them natively into the platform. That's why I like Google Gadget Ventures, I think it's promising in that sense.

Because microfinance funds benefit from greater standardization, they may turn off entrepreneurs who thrive on individuality and independence. I am one such entrepreneur and have never even considered going to a program like YCombinator. However, I would have if the market for such funds was more developed, and if I thought there was one that was a good fit for me. But I think it may help to think of microfinance funds as part of the societal evolution towards making it easier to be self-employed. In other words, this will lower the barrier to being an entrepreneur. Right now, being an entrepreneur still requires too much of a sacrifice for too many people (I have a lot of gray hairs! ). Anyway, I think lowering barriers to being an entrepreneur while helping investors generate higher returns is a win for everyone.

4. Debt-based Financing. I noticed that Spark's microfinance program involves debt-based funding. To me this seems to make more sense in the new economic environment, though there are issues. Even though financial wizardry (creating new things to gamble on, like mortgage-backed securities) are a huge part of what created this economic mess, I do think financial wizardry can help "save the day." Of course, such wizardy invariably involves the creation of virtual currencies. Which leads to my next point....

5. Political Philosophy. A long time ago I blogged about how platforms will end up replacing the nation-state. Money supply is everything here, basically what currency you use is what defines the economy you're a part of. The argument for virtual currencies and how they will emerge is something we've discussed numerous times before. I think they are another standard that will be a part of microfinance funds. It is, after all, The Business Plan That Saves the World.

Unregistered

interesting stuff. best of luck!!

a related post i saw today....
Of the people, by the people, for the people UNBERKELEY