I recently had the chance to meet with Josh and Daniel of Robot Coop. It was quite an interesting meeting for a number of reasons. The main being that I am a big fan of the approach they have taken to their startup. Essentially, they have created a company that is profitable, scales, minimizes the need for people and keeps their costs extremely low.
In speaking with entrepreneurs, angels and VCs I have repeatedly come to the conclusion that as the costs for starting a company approach zero, that there needs to be a different investment model. While companies will continue to look for or are open to a large exit (sale, IPO, etc.) more and more companies are simply looking to be profitable and to build a sustainable business.
This doesn’t negate the need for an early round of funding as most companies will need at least a small amount of capital to land on their feet as there is almost always a lag between starting a company and generating revenue.
The Robot Coop took a seed stage investment and used that to build out the business, which is a community of sites; 43 Things, 43 Places, and 43 People to name a few that are centered around the concept of User Generated Content (UGC). They have created a framework by which users can share and track personal goals, share information about their city and location and find people that they want to meet. The brilliant thing is that Josh and Daniel count on their users to make the site what it is. It scales with the user base.
Interestingly this approach is an example of how the “long tail” works. Most of their traffic happens from the much lower trafficked keywords and search terms, which allows them to spend exactly zero on advertising and marketing.
They then monetize their traffic via advertising, which has worked very well for them. Having kept their costs extremely low, and by creating a horizontal vertical that is very keyword friendly, they have built a viable business.
Back to the funding. As I mentioned, they did take a seed stage round, which they pay back to their investor similar to a dividend. This might be a model for how startups engage with investors in the future as it is not dependent upon a single liquidity event. This model does not negate a big payday for entrepreneurs or investors, but it does create a new model for early stage investing without requiring an exit or even subsequent investment rounds.
Investors will need to change their approach and investment strategy. And honestly, I don’t know if this is practical or in their best interest. They will be looking at a long term income stream versus a single return based on a multiple of their investment.
A dividend return for early stage investments is dependent upon a higher ratio of success for startups and the ability to generate revenue. While the Robot Coop isn’t the first, it is definitely a great example of this new model.
—————————————————-
nPost features startup jobs, entrepreneur interviews and hosts networking events
About nathan kaiser
