Posted by Peer-Lend on August 1st, 2008
I wrote about the P2P VC concept several months ago in an entry on LendingClub’s corporate blog, so I was excited to see that someone had finally figured out how to legally implement the concept and allow large groups of small, unsophisticated investors to place funds directly into startups looking for seed capital – without running afoul of SEC securities regulations.
The “creativity” of Atlanta-based startup 40billion.com‘s solution surprised me, however, to say the least. While they bill themselves as the first “Friends and Family Funding Network for Entrepreneurs”, and continually make use of the term “investment” (as in: “Investors contribute as little as $50 or $100 each, but these small investments really add up” and “Investors receive social returns, financial returns, and discounts”), a close reading of the site reveals a model that, in the carefully chosen words of 40billion.com “allows many investors to give small amounts of money and spread the risk”.
Didn’t catch it? The key word, buried in the seventh paragraph of 40billion’s launch press release, is (drumroll): “give“. That’s right – in exchange for, well, nothing – you can “invest” in as many up and coming startup companies as you like, and 40billion will pass along your investment dollars to the entrepreneur (or entrepreneurs) that you’ve chosen to “invest” in.
Of course, your “investment” will also be slightly diluted by the fact that 40billion.com will pocket “a small service fee of 5-7%” on the front end, so, instead of owning, um, -none- of the company that you have(n’t) invested in, investors will actually own none… minus 5-7%.
Personally, I think this is brilliant – and I went looking for who could have come up with such a clever and elegant solution. The “Founder & Co-Chief Venture Officer” of 40billion, one Cornelius Colin McNab, who, according to his onsite bio, “is an inventor with three patents and holds an MBA from MIT and a degree from Yale” (and whose entry into MITs 2005 Sloan School Entrepreneurship Contest was something called “Circle Funding”, which aimed to allow “the poor” to pool their savings and borrow from one another – interest free ), is also the principal of “3 Guys In A Garage” (listed as the “backer” of 40billion).
3 Guys has a “ Venture Wiki” where, apparently, all the big ideas are birthed – indeed, 40billion originated there! – including such concepts as the “Perfect Toothbrush” (tagline: “Don’t brush your teeth anymore!”) and the “BeerTender”, a vending machine for alcoholic beverages (why were cigarette machines outlawed again?), and, my favorite, “Totally Free TV” which is explained as follows: “What if TV were free, commercial-free. This idea seeks to pick up where Tivo left off, and eliminate commercials altogether. I think this requires a new, disruptive business model. Any thoughts?” Yeah, uh – drug testing?
To their credit, 40billion does mention in one place that entrepreneurs might “offer investors something in return for their investment (e.g., a customer discount or free sample)” and promises in one other place that support for “loans and equity investments” are forthcoming – “soon”. In the meantime, however, they do no identity verification or OFAC checking, so, if I had to guess, many of their first round of entrepreneurs, and investors, might be in the “laundry” business. I’m sure Uncle Sam will be thrilled.
On a final note, 40billion’s site indicates that its business model is patent pending. Given that the “CVO” hasn’t heard of cable television, it’s no surprise that he also hasn’t discovered long-running ventures like Fundable, ChipIn, & DropCash.