Really great news for young entrepreneurs!
As covered in this New York Times article, Charles River Ventures (a venture capital firm) is now giving out small loans to promising young internet start-ups. The program called QuickStart, is offering loans of up to $250,000
Charles River’s announcement is exactly in-line with the changing times that IntelliGrad has been blogging and writing about frequently. Due to recent advances in technology, the cost of entry for entrepreneurs has never been lower: anyone can build a website, make phone calls for free, and take advantge of little to no overhead with an internet run business. Thus, VC firms are fidgety. These guys want to make money and if young people can build companies without having to approach a VC“ as with Reddit.com“ the traditional VC business model is in trouble.
Reddit was started with less than $100,000 in financing and just this week announced an acquisition by Conde Nast Publications (their parent company also owns the San Francisco Business Times).
To counter this, Charles River is making a bold statement in offering these loans. In so doing, Charles River is effectively admitting that power is shifting from big money VCs to the entrepreneur“ and this is all great news as far as I am concerned.
IntelliGrad has had to wrestle with issues of investment (cash infusion) vs. the loss of equity (no longer making all the decisions) and it’s no easy task. A loan solves these issues because the power stays with the entrepreneur, since (at least initially) no equity is sacrificed.
I say initially, because typically the loan is a convertible. [If you could care less about finance you can stop reading now, because the MBA student in me will now appear.] A convertible loan simply means that at some point in time the loan ’converts’ to equity when a certain milestone is reached. In this case, Charles River is loaning money at an attractive rate hoping to get in ’early’ on a hot internet start-up. The hope is that in a few years time, several of theirloan investments will have been for companies that ’take off’ and need a Series A round of financing“ in other words, a big investment (needed for expansion/growth). If a Series A occurs, then part of the loan converts into equity and now Charles River has ownership in the company.
For more information on the program, or to apply, you can visit this link or contact Charles River at: quikstart@crv.com