CRV Offers Creative Financing

According to Venture Beat, Charles River Ventures (CRV), an early stage venturecapital firm, has launched a new investment strategy, offering rapid but tiny $250,000 checks to Internet start-ups.

According to VentureBeat, "The advantage of a seed round is that it done as a “convertible” loan, which means the $250,000 is essentially a no-strings-attached loan to an entrepreneur. There is no equity stake claim by the investor at the time, which is good for the entrepreneur, who can see how good his idea is first. If the idea gains traction, he can raise money in the series A and negotiate a high valuation for his company. If he can command a $5 million valuation, for example, the investor’s $250,000 seed money converts into only 5 percent of the company."

This is a great idea. Traditionally, it has been very difficult for VCs to differentiate themselves from each other, and this certainly does the trick.

CRV should see a major influx of new concepts and business plans. Most importantly, it should see new ideas/ventures well before its VC competitors.

This also reminds me a bit of Grameen Bank. Grameen Bank founder Muhammad Yunus recently won the Nobel Peace Prize. Grameen Bank specializes in microcredit or very small business loans (average of $200). Since 1976, Grameen Bank has made approximately $5.7 billion in loans to more than 6.6 million people in India, mostly poor people who were shunned by traditional banks. The repayment rate is an astounding 98 percent.

Hopefully CRV will have similar success with this great concept!