Partnering

Last year I wrote a long pice The Electronic Micro Venture in which I outlined these 6 simple rules to help launch and fund a transparent micro venture.

As these are very important to what I am doing right now it I will keep an updated version of the 6 rules here.

These rules are somewhat inspired by The Cluetrain Manifesto, The Agile Manifesto and Joi Ito’s essay Emergent Democracy :

1. Focus on one and only one clearly defined economic activity.

You need to be able to model and audit this in real time. Create another entity for each related activity. If you need to group them together create a new parent entity, whose only focus is as a kind of mutual fund investing in it’s child entities. This also distributes it’s profits that it receives from it’s holdings direct to it’s share holders.

The revenue model should be very easy to understand. Model it out and create an online revenue calculator. This will help share holders understand and focus on the business at hand.

2. Distribute revenue early and often.

Depending on the exact revenue model, distribute in realtime or on a weekly basis. If deemed necessary keep a limited reserve in the venture, but distribute everything else to the share holders. This helps the transparency and motivates all parties to focus on 1.

3. Attempt to eliminate the burn rate.

If at all possible reduce all fixed costs. I’m not just saying what the GAAP says are fixed costs. The idea that consultants fees and monthly hosting fees are dynamic expenses are a left over from the industrial era. Any fixed costs need to be funded by you or an investor. So keep them small and transparent. Each one should be justified publically. If at all possible eliminate the burn entirely by offering shares to a stakeholder responsible for managing one particular function (see 6.)

4. Pay stakeholders with shares, not cash.

Salaries, wages and consulting fees are NOT transparent nor do they make sense in a massively networked world. Pay developers, staff and suppliers with shares. Due to rule 2. they will start receiving funds quickly. This focuses all parties on Rule. 1.

5. Keep a flat democratic command structure.

Representative democracty is NOT transparent. We are all on the internet now, there is no longer a need nor excuse for the traditional 3 layer structure of (officers, directors and shareholders). Utilize Blogs, Wiki’s, Discussion Forums and email to maximum ability.

6. Outsource Capital Costs

The traditional lump sum funding method is not transparent. If there are any major capital costs outline each one them when seeking funding. As an example in my hosting company we have the following capital costs:

• Server hosting
• Completed Transaction Processing Server customized for the hosting business.

For me the two of them are worth each say 25% of the company. Now an investor might want to offer $20,000 so I could buy the servers and pay for hosting until the venture is profitable. However I would receive the same value if a hosting company offered to handle the physical server hosting on an ongoing basis in return for 25 of the shares. The same thing is true for the software development. Traditionally the vc would pay a large lump sum to handle all the developers salaries. Offering 25 of the company to whoever solves the problem is better. Maybe a guy with big pockets could hire a team of developers in Hydrabad to do it or maybe a guy in Hydrabad or Talinn decides to bid for it himself.

If you do end up with a burn rate. Fund it as a kind of reverse option. Investor B. guarantees a maximum of $500pm for 12 months. When the venture needs it to cover it’s burn, it calls the monthly option.

update I have created a presentation over on my latest project SoapBX following up on my ideas for micro ventures. Have a look your self Six simple rules for Micro Ventures