A new toolkit for the new entrepreneur

Entrepreneurs are renowned for being innovators, but lately they've had to undergo some innovation themselves, making use of new tools providing opportunities for commercialising ideas that don't fit with the current system.

In a recent talk, TangibleFuture chief executive officer (CEO) Dr Richard Caro detailed elements of "entrepreneurship 3.0" that address flaws in the current system where ideas or products are sometimes ignored because they don't fit a particular profile.

The three main trends that underpin this new model are the power of the collective, social networking and crowd-sourcing, he said.

Collectives

A collective is a concept where people organise themselves for a common goal and often the motivation is not simply an economic one, he said. Examples include the open-source movement, which spawned platforms such as Linux and companies like Red Hat, as well as the online encyclopaedia, Wikipedia.

A collective also offers opportunities of networking, mentoring and investment opportunities, which he said can eliminate the problem of entrepreneurs investing all their time and resources into an idea that may not ultimately be successful.

One example is The Founder Institute, which runs a four-month training and mentoring program. After the program graduates contribute a small percentage of their company to a bonus pool.

Returns are shared with other graduates, mentors and the institute.

"Right away they have some diversification there," Caro said. "If they're really successful they won't have got as much out of it as if they'd gone by themselves; on the other hand, if they're just averagely successful, or not at all, they'll get a little share of other people's stuff."

A similar organisation is the UK-based Founders Club, where he said investors control a pool of funds made up of small parts of venture capital-backed companies.

Crowd-sourced finance

Another trend driving the new model of entrepreneurship is crowd-sourced finance, which he said could provide a solution for ideas that do not fit the typical venture capital (VC) firm investment profile, which is usually between $10 million to $20 million.

"If you have a business that only needs half a million, it's not interesting even if it was going to have a return on investment of 100," he said. "It doesn't fit that VC model because you can't put enough capital to work."

"You need a billion dollar market more or less to be able to fit that profile, which are kind of hard to find."

One example of crowd-source finance is Hong Kong-based Grow VC, which builds a seed fund using a large number of small investments from individuals.

Another example is Keiretsu Forum, where entrepreneurs pitch company ideas to a worldwide network of 850 "angels" (Caro is a member).

Members with relevant expertise conduct due diligence on the company and can be part of a single deal.

This model has invested in a range of ideas outside the typical VC profile, including a successful fruit juice company, a backyard windmill manufacturer and a company that sells surf adventure tours.

Social networking

Finally, social-networking platforms have also provided an opportunity for entrepreneurs to overcome the problem of not being able to judge the quality of advice or share notes with each other.

The Funded is a community of over 14,500 CEOs, founders and entrepreneurs, that can rate and review investors and firms.

The key is that only non-investors can get involved, but he said that produces mixed results.

"The quality of advice is very variable. There are some people that have done it all, very experienced and what they say seems right on to me.

"There are other people that have never done a start-up before and have strong opinions, but you can't tell from the opinions, who's who. So if you sort of already know the answer, you can filter out what's right, but if you don't know the answer it's a bit difficult.

"Nonetheless, if you're an entrepreneur I really recommend this site, I think it's fascinating."

There is also the Acceleration Co-op, which Caro is involved in, and looks to provide incentives for experts to help budding entrepreneurs and also rank the quality of the advice provided.

Unproven trends

Caro flagged that these ideas are unproven but could provide an alternative to the current system of commercialising companies and ideas.

"This is very exciting and interesting but it's much too early to say this is going to be very important or a fascinating blip on the road.

"I think it's the time of experimentation, I think it's got the potential of huge societal benefits. This could potentially lead to more innovation, at lower risk, which has impact on [gross domestic product] and country competitiveness and all sorts of macro economic factors.

"The caveat is there's a big entrenched system and the people in it like it a lot. There are a lot of headwinds, so for those of you who think it's something to try, it's hard work but well worth doing."