When it comes to launching a startup, where does the seed stage money go? It goes into funding resources: office space, programmers, developers, engineers, designers, and business plan writers. The trend that is emerging, which has worked for numerous successful startups, is for entrepreneurs to skip seed stage VCs and tap into collectives instead. A collective is a pool of resource providers that invests in startups – but instead of investing capital, they invest their services and the other resources they have access to.
So instead of giving an entrepreneurial startup founder $100,000, the collective gives him office space. The programmer in the group writes code for him, and the designer helps with the layout. Another member works alongside the entrepreneur to write the business plan that will be presented to the multi-million dollar VCs in the growth (Series A) round. Everyone in the collective has something to contribute, somewhere.
Ultimately, the resources provided by the collective are used to create a minimum viable product (MVP) to present to the growth investors. In exchange, the collective owns a small percentage of the company; it collects that equity when the business turns a profit, or when the founder sells. For the collective, it’s a fairly low risk investment: If the company fails, each member only loses whatever time was devoted to providing resources. For the startup, it’s a win-win; there are fewer costly decisions to be made in the initial stages, because all the necessary services were provided at no cost.
There will always be a demand for cash, but let’s be honest: Cash is only a means to an end. What every startup really needs is resources. Collectives such as Cogent Collective can provide those resources that will impact a new business: services, space, software. If your startup is in need of resources, reach out to them.
Article originally written for BizHack.IT Investing More than Cash: The New Demand for Resources