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The Trouble with Unreasonable Crowdfunding

3p Contributor | Wednesday February 15th, 2012 | 12 Comments

This post originally appeared on BOPreneur and is reprinted with permission.

By: Teju Ravilochan

Here at the Unreasonable Institute, we believe in militant transparency. It’s a value coined by our founder, Daniel Epstein, and it means being honest about the good, the bad, and the ugly. This blog post involves all three.

The good
When we began the Unreasonable Institute, we did a lot of research about how to select social entrepreneurs to join our organization. We asked investors how they made their picks. We researched hiring practices. We even looked at the Med School admissions processes. We discovered that most of the time, written applications and interviews are poor predictors of performance. What matters most is testing a candidate’s ability to do the job you
want them to do. In addition to picking the best possible entrepreneurs, we also wanted to generate revenue without asking our participants to pay to attend the Institute. We didn’t want to make the program inaccessible to deserving entrepreneurs who couldn’t afford it.

So we came up with the Unreasonable Marketplace, where we challenge our 50ish finalists to raise the
$10,000 it costs to attend the Institute. The first 25 to do so are the
entrepreneurs we accept. The best part? They are not allowed to pay it themselves. They must raise it from others in small increments (to avoid the “Rich Uncle Problem” of a wealthy connection giving you all the money at once). Hypothetically, it was the perfect solution. Candidates prove their ability to galvanize, mobilize, and raise capital, they don’t pay for the program, and we generate revenue.

And surprisingly enough, it works. Over the past two years, the 48 entrepreneurs that have attended Unreasonable have raised a cumulative total $370,500 from more than 7,000 people in 50 countries.

But isn’t this unfair to entrepreneurs from developing countries? It certainly appears that way if you take a look at, for example, 2011 Fellow Moses Sanga. He didn’t have shoes until age 13. He hadn’t seen a computer until he was 15. He is the first person from his village to get a high school diploma. The nearest place to access internet is 17 kilometers from where he lives, and he started his company with $500. But while it would seem impossible for him to do so, Moses succeeded on the Marketplace. He attended our 2011 Summer Institute, raised $60,000 and became a TED Fellow

And it’s not just Moses: we’ve also had a former child soldier from Liberia, a Pakistani woman from a remote tribal region, and a Nigerian farmer succeed on the Marketplace.

How did this happen? Even we were surprised. 
First, these entrepreneurs worked hard. Khalida, from Pakistan,
went door-to-door in her village collecting cash contributions (which our
Marketplace can accept and verify). Moses visited CEOs of local businesses in
Kampala to ask for their help.

We also went to work for them. We formed a partnership with HP in 2011, who generously contributes $42,500 each year into a fund that the entrepreneurs on the Marketplace allocate amongst themselves. The stated intention of the fund is to support entrepreneurs from the developing world. We reached out to our mentor network and asked them to support entrepreneurs from developing countries who they believed deserved a spot. We reached out to press and landed stories in Forbes, the Wall Street Journal blog, and even HP’s blog, aiming to drive traffic to the Marketplace.

The bad
Despite all these efforts, we’ve observed that 85 percent of donations on the Marketplace come from people who know the entrepreneur they’re supporting. That’s not to downplay the incredible accomplishment of raising $10,000 nor the creative approaches that some of our entrepreneurs have employed. But this
means that ultimately, the Marketplace becomes a test of the size of your
network more than it does your entrepreneurial ability.

The ugly
So what does that mean? It means our Marketplace, which we’ve spent thousands of dollars and hundreds of hours building, is unfair. Entrepreneurs without large networks are flat out disadvantaged in this process. And this unfairness is visible even on our current Marketplace. Take a look at 2012 Finalist Narcisse Mbunzama. He’s a former child soldier from the Democratic Republic of the Congo. He’s started an incredible company called Mobile Agribusiness. It currently reaches 500 farmers, providing them information about weather, how much to sell their crops for at the market, and information about how to better grow their crops. Not only is it targeting a need for 80 percent of Congo’s population (who are farmers), but Narcisse and his team built this company despite living in a country where 5.4 million people were killed in the last decade in what has been the called the bloodiest civil war of our time. And while three entrepreneurs from Brazil and the United States have raised their $10,000 in 15 days, he’s only raised $70.

Don’t get me wrong. I love our Marketplace. I believe in it. It selects entrepreneurs that are a perfect fit for our program: those that are willing to take on the seemingly impossible task of raising $10,000 in small increments from hundreds of people. And when they show up in Boulder, they knock it out of the park.

But it pains me deeply to see that by the merit of his work and effort alone, Narcisse is unable to get more support. We’ve matched him with an Unreasonable alumnus to help him strategize and shared his story with the press. But he, and other deserving finalists in the same position, continue to struggle.

The reason we exist is to create a world where no one is limited by their circumstances. We believe coming to the 2012 Unreasonable Institute could change the lives of the entrepreneurs on the Marketplace. It did for Moses. Our team now knows that we must find a new solution next year to select our 25 entrepreneurs. And we will.

For now, we need help. The Marketplace, which lasts 50 days, is just past its halfway point. If you believe in entrepreneurs like Narcisse and in their work, join us. Help us bring them to the Unreasonable Institute. Help us help them to serve people who desperately need their unrelenting drive, who need their determination to transform their world. They just might define progress in our time.

Teju Ravilochan is a co-founder of the Unreasonable Institute which accele rates entrepreneurs tackling global challenges with 6 weeks of mentorship,access to capital, and a worldwide network of support.


▼▼▼      12 Comments     ▼▼▼

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  • Al Doerksen

    I like the model practised by UI, but I think you need, as some point, to do some review to check if there is, indeed, any correlation between being able to scrounge $10K and future success in a social, for profit venture.

  • http://twitter.com/Kevindoylejones Kevindoylejones

    Amazing and great transparency, Teju.

  • Renee

    Maybe you should shift the criteria based on the entrant’s relative GNP or whatever financial metrics would make the competition fair. I’m not an expert by any means, so take my example as a guess of how to do this. If the average daily wage in country x is $1, and in country y it’s $10, then allow the applicant from country x 10 times as much time to raise the $10,000. I know, that’s simplistic, but treat the situation with real economies.

  • Roywwagner

    I Agree with all 3 posts, I would add this Why knowing that these Guys really needs help do the Unreasonable Institute not spend the next few Hundreds of Hours and thousands of dollars crowd sourcing a seed capital fund to Support these worthy ideas.
    Lets see what you can do?  With the unfair advantage of your network. 
    Or am I being Unreasonable. Roy Wagner.

  • http://www.facebook.com/tejuravilochan Teju Ravilochan

    Thank you all for the kind comments and suggestions!

    Al, I very much agree that measuring the effectiveness of our process is important. We will be working on this (and I believe we have a good solution that involves comparing our Fellows to a base case – but it’s high time for us to implement it). 

    Renee, I like your idea of having a slide scale and giving finalists more time! What we’ve found is that having a tight timeline actually creates a sense of urgency for others and they are more likely to contribute on the Marketplace to these finalists than on other crowdfunding platforms (evidenced by how our Fellows have fared raising money on other crowdfunding platforms, where they haven’t been able to raise as much as fast). But the interest of greater fairness is our principle concern as well!

    Roy, we are indeed working on raising a fund! Something called Unreasonable Capital, which will be used to direct investment toward the incredible entrepreneurs we have the privilege of working with! 

    Kevin, thanks for your kind words. It is a little scary to be open about the shortcomings of our approach even while the Marketplace is running. But we are very encouraged by all the positive response we’ve gotten from everyone!

    The bottom line is that we are working on a new solution and can’t wait next year to have a much fairer way to pick our entrepreneurs. We have an idea, that we need to finalize as a team, how to make it happen. But once it is finalized, we’ll be sure to share it! 

    We know that we don’t have all the answers and that we often won’t get it right on the first try. We are learning so much in pursuit of our mission and this kind of input is invaluable to us growing as an organization, as a team, and as individuals. Thank you all for taking the time to share your thoughts!

    With gratitude,

    Teju

    • gwkoren

      Hi Teju,

      Will your new selection tool still be using crowdfunding? Would be great!

      Some thoughts:

      1. Let’s state that crowdfunding success = network x money

      2. This means that crowdfunding through the Marketplace will only work if your personal network is large enough (since 85% of funding comes from your own network) and that your network needs to have some serious spare money (if your network is living on $2 a day, you need 5000 people to pitch in their daily wages to reach $10k!). What about giving the finalists the task to raise $1,000 and have $1 as the maximum pledge? That would be a struggle for anyone! For people from the West, it would be like clicking a Facebook Like button, for people in developing countries, it could be half of their daily wages… Maybe it’s still not such a great solution ;-) What about calculating it back to the cost of a kilo of rice? In stead of raising $1,000, finalists could raise 1,000 the local value of a kilo of rice! Not sure whether this solves the problem either…

      3. Another strategy could be to use KIVA (although a lending model, where people have to pay back the money), because KIVA is attracting a lot of funders without the project owners having to promote their business.

      Good luck and looking forward to support one or more participants again for 2013.

      Best,

      Gijsbert

  • RAVI CHANDRA

    Do not get discouraged TEJU. Its eternal struggle for entrepreneurs. Keep Learning. Keep adapting. Keep walking. After all, we are unreasonables

  • http://www.facebook.com/tejuravilochan Teju Ravilochan

    Ravi, I love your entrepreneurial spirit! I am definitely not discouraged, but uplifted by people like you! It is liberating to be able to honestly self-assess and understand the steps we can take toward improvement and have this kind of support from those in our community!

    Keep pushing Ravi! We are rooting for your success on the Marketplace! 

  • http://twitter.com/ideasurge Kendall Thiessen

    My quick reactions:

    1)  It takes a Network. Having a network of supporters or someone on your team that has a network is always important.  A startup is more like a village and if you are unable to get effective support before you launch, will you have the personality and network to drive future capital fundraising and other efforts after the institute? I hate to say it but in my experience as startup counsel, the ideas that get legs are often the ones that are run by individuals with a better network vs the “best” idea so there is some validity to the approach as it forces some provable support.

    2) Cash is King? Maybe instead of cash the real test should be social currency. How to measure is always a challenge but I think of the 10,000 fans model–get 10,000 fans and you will have sustainable income for life.  Your examples above Teju point to the very critical importance of local support so is there a way to measure support outside of $$ the old school “vote for me” approach?

    3) I had heard about your capital fund and think that will go a long way toward solving some of this but it sort of begs the question–what is the criteria for admission if self-funding is no longer one of the hurdles (a pretty big filter)?  Techstars certainly has their model.  Founders Institute uses a test to validate theirs. I have served as a judge (such as green tech contests) for yet others.  Each one will have downsides so it seems to me that part of it is not so much deciding if the marketplace works–but whether a different system (to be defined) is going to be better to achieve the results desired by the Unreasonable Institute.

    4)   It seems that often the best juries are composed of peers so is there a way to connect peers early on in the application cycle to help form collaborative workgroups.  Esp peers from their region or part of the world. Add content from a Socent resource site like SEtoolbelt and suddenly they are not waiting to apply–they are helping each other launch.   This also means that the application process is not a distraction from your plan but instead could help propel ideas forward even if they are not ultimately selected.  I love the idea that even the application process provides value back to the entrepreneur in insight, resources, perspective and relationships. A sort of “virtual unreasonable” that helps filter those that are ready to go the “real” institute. 

    I am a big fan of radical transparency and am excited to see how you guys continue to develop what I think could really grow–in exciting ways–and strongly believe that your a willingness to take chances, try new things, and experiment–is a huge step toward achieving those goals. 

    Good luck!

    Kendall
    @ideasurge:twitter 

    P.S. look forward to crossing paths again some day soon! 

  • Joaoferrazmendes

    Hello, I have been suporting poor people trough KIVA for some time and I now joined Inventure but there are no entrepreneurs available to support?
    My idea is:
    We could provide the capital to fund those businesses that don’t have the social network to raise the 10K.
    How can we provide those ideas? By functioning like business angels.
    To sumarise what i propose is: The ideas that get the 10K from the unreasonable market place are in automatically, those that don’t enter a “second market” that works a bit different.
    This “second market” would be brought in to the inventure site or any other similar site or form so that we could fund the idea  (just like business angels) first for the 10K and second for the development and funding of the ensuing parts of the business development.
    This as 2 advantages in my viewpoint, we use resources that are already part of the unreasonable fellows strengthening the network, and we could get more ideas in.

  • http://www.facebook.com/tejuravilochan Teju Ravilochan

    Hi everyone! Since writing this post, our team has taken our next steps in terms of figuring out what to do about the Unreasonable Marketplace. We’ve decided to remove it from this year’s selection process. We’ve outlined a new selection process that involves a shorter application, a first round interview, and then a second round interview with domain and geographic experts (which you can read about here: http://unreasonableinstitute.org/selection-process/). We’re scheduled to have all our entrepreneurs chosen by December 23, 2012.

    What we’ll now do is charge the entrepreneurs $10,000 (for an individual) or $12,000 (for a team of two) to attend, which they can pay out of pocket. However, if they need help they can use the Marketplace to crowdfund and we’ll also help in driving traffic to the Marketplace. In this way, an entrepreneur’s selection into the program is not contingent upon the size of their network, and they can still get help to cover the costs of attending if they don’t have it.

    We’ll open the Marketplace in January 2013 and share another update then!

    Thanks to everyone for being so engaged and involved in this conversation!

    • Teju Ravilochan

      Hey everyone! Just a quick update. Today is Jan. 21, 2014. Last year we dropped the marketplace as part of our selection. We replace the third round of our selection with “expert interviews,” where we brought in people who have deep knowledge of the field in which our candidates work to evaluate how likely it is that they are onto something. It has worked incredibly well in helping us better understand the rigor of thinking in an entrepreneur’s venture and their potential for creating impact!

      The Marketplace still exists as a resource for entrepreneurs who want to raise the costs of tuition via crowdfunding. All of the ventures that have attended the Institute until now have indeed opted to use it. Because it was no longer part of our selection process, we now also engage our network to support our entrepreneurs on the Marketplace. This approach seems to work much better and doesn’t bias our selection against entrepreneurs without large networks with disposable income.

      We’re happy with the learning and we’ve found a selection process we think works much better! Thanks to all those who showed interest and support in this conversation!