A New Model for Angel Investing
Kim Scheinberg's new venture fund plans to institutionalize the idea of paying it forward.
At its heart this new idea was thought up by a kale pusher. When you walk into her loft you are greeted by a slight and energetic women wearing a shirt that reads "EAT MORE KALE." After a few minutes of sitting down, adamantly reassuring her that you are both full and fine, you find yourself both enjoying and preaching the merits of Kale chips.
This women is named Kim Scheinberg, and she is a writer and an angel investor. Today she announced a new way of investing that could provide a new model for angel investment that melds the philanthropic with the excitement of the start up-all while creating an ongoing wave of new enterprises that do good for the world.
Normally this is how it works:
You have an idea, find an angel to invest in you, decide how much your idea is worth, give them a piece of it, get the money, build the company, sell the company (hopefully), and then the standard outcome is that the angel gets rich based on whatever percentage you agreed on at the beginning, which is fine and as far as it goes.
Kim has a different idea for her fund, called Presumed Abundance, and it works like this:
It begins the same as with other angel investments: you have an idea, find her fund, pitch your idea, pick a value, give a percentage, and get cash. But that is where the similarities end. With Presumed Abundance, if you sell the company, the percentage you gave up is no longer just owned by the angel but by both of you. The only stipulation is that you reinvest it in another exciting business that does good for the world.
This means that if your business is successful and you sell your company, then the very next day you yourself become an angel investor. Together, in partnership, you get to decide what the next great company is going to be and together you help another young entrepreneur get their grounding and get going. It's a variation on a trend that's been building for some time, sometimes called venture philanthropy or social venturing. This opportunity has emerged out of the blending of high-tech venture capital, social entrepreneurship, and traditional philanthropy.
This idea, which was privately launched last week at the StartingBloc New York Institute, and today is being announced to the public, is in the final stages of closing its first investment of $25,000 to a group called Open Action.
"We just struggled as an organization to valuate our company. We began as allies working together, and then by putting percentages on things our conversations turned into a negotiation," says Mike Wenger, one of the two founders of Open Action. "We were just two young social entrepreneurs, and what Kim eventually proposed to us was such a powerful idea that it immediately stuck."
The fund is initially capitalized at $250,000 and is set to fund 10 to 20 new businesses with investments between $5,000 and $25,000 over the next two years. If even one of the groups reaches liquidity it should enable another ten to start setting off a wave of new enterprises that will change this world.
The "Presumed Abundance" clause, with its simple "fund it forward" language should be a fundamental part of every new investment in social enterprise. It changes the nature of the relationship between investors and entrepreneurs. It honors trust and collaboration, and most importantly, it has the potential to mobilize entrepreneurs to change the world we are building from one of scarcity to one of abundance.
Dev Aujla is the founder of DreamNow. Photo by Flickr user kevindooley.
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