Crowd Funding and Small Business

PSFK has an interesting post about a start-up clothing company called nvohk (invoke) that claims to be (from their press release) "the first community-managed, eco-friendly, surf-inspired clothing company."

nvohk is looking for 20,000 to 40,000 members to contribute $50 each to the company.  nvohk calls this "crowdfunding" in their press release.  In exchange, the company will poll members on major business decisions, donate 10% of net profits to charity and give nvohk reward points equal to 35% of net profits to members.  These reward points will be redeemable in nvohk clothining.

The Internet now makes it possible to raise money via small amounts.  Examples include Donorschoose, a non-profit raising money for schools, and for-profit Prosper, which provides commercial money brokering services.   

nvohk is using this approach to raise $1-2 million to help start the business.  In exchange they are giving up no equity, nor do they have to pay interest or pay the money back. Instead they are committing to giving product discounts to their members.  As a source of capital, this deal cannot be beat.  Not only is the cost of capital effectively zero, there are no onerous investors or bankers to deal with. 

The members also immediately become product evangelists.  In other words, the members are paying nvohk to become product champions.  This is a very cool viral marketing campaign. 

It will be interesting to see if this works and they are able to attract 20,000 members.  I can see consumers agreeing to do this.  First, $50 is not a lot of money if you think you are going to like the clothes.  Second, it sounds like fun.  I'm thinking of signing up.

Comments

[Alena]

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Alena

http://grantfoundation.net

[Robert Wagner]

I like your comments at the end. There are several businesses currently using this model to support their business and are doing well at it. www.cameesa.com is just one of many that is making it work. I like your interest in the topic.

[Business Funder]

This is an interesting take on business funding. It will be interesting to see whether it works or not, because if it does end up working it could shake things up quite a big!