Profounder Delivers for Entrepreneurs, and the Communities That Believe In Them

There are a lot of exciting and rewarding parts to starting a business: the rush of having that Big Idea, the freedom of being your own boss, the satisfaction of creating something from nothing. But there’s one part of building a business that is not a lot of fun for anyone: raising the money to get it off the ground. If you don’t come from a finance background, the loan and investment options are extremely confusing. And once you do sort out the options, it turns out most are not particularly well suited for a small, local business. So many entrepreneurs will turn to their friends and family for a loan or investment, often putting big strains on the relationship if expectations haven’t been clearly set. What a mess.

Now there’s a new, more appealing way to raise that money. Small businesses of America, meet ProFounder, an easy-to-use online platform to raise money through your friends, family and other communities started by Jessica Jackley and Dana Mauriello. The pair met in Stanford’s MBA program, and bring varied, considerable experience to the arena. You may know Jessica as a co-founder and former CMO of Kiva, the world’s first peer-to-peer microlending platform that works with tiny businesses around the world, such as a shopkeeper in the Philippines or mototaxi driver in Peru. Meanwhile, Dana has a wealth of experience in building small businesses with her family. “My family had a number of small businesses growing up, none very large or financially successful...,” Dana relates. “[We were] constantly trying to make things and sell them, from exercise equipment, to bone analyzers, to nutritional baked goods. What I learned from that experience was really the business owner mentality of being the local inventor in your basement, seeing a problem, being empowered to actually solve that problem and spread that to other people. Seeing my dad do that was totally inspiring to me.”

In the summer of 2009, they were working out of Stanford’s Center for Entrepreneurial Studies, surrounded by other recent grads trying to get their businesses up and running. Jessica describes the inspiration for ProFounder: “We started thinking of how to better serve small businesses in the United States and realized there was a big gap in an easy way for small businesses to get the funding that they needed to succeed. Yes, there were loans and a lot of people might think at first blush why don’t you go to a venture capitalist or angel investors or get a line of credit? But it turns out the vast majority of private companies are funded by friends and families, and there’s really no easy or clean way to do this. It’s almost always done offline in a very haphazard process. It’s costly in terms of money and time and unfortunately relationships get damaged because things aren’t clarified or explained very clearly.”

Another challenge they noticed was the apprehension with which entrepreneurs approach the process. When entrepreneurs are trying to raise capital, says Jessica, they’re not excited about it. “They think of it as asking for money versus making an offer. They don’t think ‘I’m going to do this amazing thing for my community and it’s going to grow. There are going to be profits to be shared… and I could actually engage my community in sharing as an upside.’”

So Dana and Jessica began developing a better way for entrepreneurs to tap into their existing networks, with the goal, says Dana, to “empower as many people as we can to pursue their dreams through entrepreneurship.” They spent the next few months meeting with lawyers all around Silicon Valley to understand the legal issues, as well as speaking with other entrepreneurs to hammer out the product offering. Later that year, ProFounder launched its private beta, and in December 2010 opened up to the public. To date, ProFounder has raised $302,000 for 10 businesses, spread across 245 investors.

The key word for ProFounder is access. The ProFounder team has done an amazing job of making this intimidating legal and financial process more accessible for fledgling entrepreneurs and the people who want to support them. Explains Jessica, “we really wanted to provide a tool for entrepreneurs to name their own terms and decide what they wanted. And kind of flip traditional funding on its head.” ProFounder is based on a unique model of revenue sharing that ties the investment directly to the success of the company in a way that’s quite beneficial to the business. Unlike equity, the business retains all ownership and control, which also means no pressure to sell. Unlike debt, the business isn’t committed to payouts if it has a bad year. Unlike both, the business is deciding the financial terms of the agreement – how much money to raise, how much to share of revenue, when, and for how long. Meanwhile, investors have the potential for more return than they would get with a loan. But most importantly, ProFounder opens up investing to anyone – not just the super rich or accredited investors — with the formality and legal compliance that casual arrangements lack. Community members and loyal customers have the chance to tangibly support the Main Street business that they want in their town.

Here’s how it works: Small Biz Owner decides how much money she needs to raise and how she wants to compensate investors, and provides some basic company info to ProFounder. Next, ProFounder takes this information and creates a private fundraising website. Small Biz Owner reviews the site and publishes it, paying ProFounder a fee of $100. Now, Small Biz Owner invites all her potential investors (friends, family, ex-coworkers, fellow alumni) to view her fundraising site and has 30 days to complete the raise. (Like other crowdsourcing platforms, she only keeps the money if the full amount is raised.) Best of all, ProFounder manages the nitty gritty of the entire process by collecting e-signatures, distributing funds to the business, and paying out the investors throughout the life of the investment, for an additional fee of $1000.

Harper Poe was an early beta-tester of the platform, and completed a $12,000 raise for her company Proud Mary, a sustainable and socially conscious producer of woven goods from around the world. For a successful raise, Harper recommends that business owners think of it as a campaign and “spend time each day thinking of new ways to spread the word about the raise and reach out to every network they can think of.”

Thanks to her 29 investors, Harper now has the funds to produce and market a new collection of handmade Guatemalan textiles, plus a new website and marketing collateral. But Harper got more than just money from her ProFounder experience, she expanded and strengthened the community around her business: “Through my raise I got connected with some amazing people. I'm going to be collaborating with one of my investors and new friend on a temporary pop-up shop in NYC in May. She is starting a similar social venture working with traditional African fabrics and seamstresses in Ghana to produce an amazing fashion collection.”

Profounder is focusing on building grassroots support and exposure by partnering with local business leaders around the country. These Group Advisors will help grow Profounder through in-person events that explain the platform, and connect entrepreneurs to each other and potential investors. In March, Profounder kicked-off this program with events in Atlanta, Detroit and New Orleans. On the platform side, Dana and Jessica are working on expanding the offering with more customized investment terms and finding ways for entrepreneurs to tap into their friends-of-friends through affiliate groups like alumni.

ProFounder is a much needed resource for small businesses getting on their feet or expanding, but perhaps more importantly, it is poised to be a game-changer in the way they engage with their communities by also empowering everyday investors to fund the entrepreneurs they believe in.

Visit Profounder.com

Harper Poe photo by Post and Courier