Those of us who keep a close eye on the business press see a lot of headlines about millions of dollars pouring into chosen startup companies, locally and around the country. And that’s great. But we also know that for every growing company that needs a million-dollar boost, there are probably 25 scrappy founders and their teams who could get a lot done with $25,000.
Consider the model of the visionary founder. She needs help. Maybe the founder is the builder, and can put things together but does not know what customers would actually buy or how to get it to market. Or maybe she has planned a product that people will buy and has figured out the how and the why. But she needs to hire a builder. Or she has something that works really well but looks weird, and nobody knows about it. So she needs to go out and buy design help to fix the look of it and marketing help to spread the word. For many companies, these initial hurdles can be cleared with a five-figure investment, rather than six or seven figures. Enter: SeedRVA.
A seed fund made up of community contributions was the concept discussed over coffee for several months by Tom Benedetti, partner with Blue Heron Capital; Phil Conein, co-owner of Techead and Shockoe.com; and yours truly, lawyer with Threshold Counsel. Based on our experiences with clients, friends, and other businesses looking for capital, the three of us discussed the need for an organized fund to capture and invest smaller dollar amounts, and Benedetti suggested what has become the framework for SeedRVA.
The funding environment for startup companies should look like a pyramid. The broad base of the pyramid-funding at the seed level-is necessary for a healthy startup ecosystem. SeedRVA would help to build the base of that pyramid, to support a broader range of companies at a level closer to the ground than the funding events with all of those zeroes attached to them.
SeedRVA, using the platform of our friends and neighbors at Fundroom.com, seeks contributions from community members, with a goal of raising $100,000 per year over the first three years. No contribution is too small, and contributors will be recognized for commitment levels of $250, $500, or $1,000 per year for those three years. In the first few years, if four companies per year meet the underwriting scrutiny of SeedRVA’s investment committee, four companies a year will receive seed funding, with the seed funding amounts probably averaging $25,000. If contributions are larger, the seed investments will be more.
Contributors to SeedRVA will not receive any ownership interest in the companies. This allows this community fund to solicit contributions without running afoul of federal securities laws, and it prevents the startup companies from having dozens of small co-owners.
SeedRVA itself will take an equity stake in the companies it funds. The founders and directors are volunteers, and all returns from successful seed investments (and not all will be successful) will be reinvested as seed funding for other startup companies. Volunteer executives and entrepreneurs will serve on SeedRVA’s board of directors and investment committee and will also provide mentoring to the funded companies.