So far, $200 million dollars has been pledged toward Kickstarter projects from 2 million backers, not to mention the money raised by competitors like Indiegogo and RocketHub. But what if instead of donating money, people devoted their social capital? And instead of scoring quaint prizes in return for their support, backers received an actual stake in the company’s success?
That’s the model behind Wahooly, an online accelerator that gives everyday people the opportunity to invest in startups without putting anything more than their reputations on the line. Today, Wahooly announced it had finalized $750,000 in seed funding. Joe Kalfa, the lead investor, says, "It's unlike anything I've seen before. Wahooly has solved a real problem (on both sides of the coin) in an extremely disruptive way. I predict that Wahooly will shift the way companies look at going to market."
Here's how it works: Wahooly presents Groupon-like offers to its social-savvy users (all of whom are required to have a Klout score of 35 or higher) to hold a stake in startups that apply to the Wahooly accelerator program. Participants then receive points for not only promoting the startup within their social circles, but also for using the company’s product and providing feedback on how to make it better. In return, the startup gives Wahooly around 6-8% of its equity. After a year, Wahooly cashes in on its investment and gives about half of whatever it earns back to its users based on how many points they earned.
"I was writing a weekly blog called StartMeUp [Ed. note: and writing for Fast Company] covering technology-based startups, and I did over 70 interviews with emergent companies over about a year-and-a-half timeframe," says Wahooly CEO and cofounder Dana Severson. "One of the things that I would ask is, ‘What challenges are you facing?’ And to some degree or another there was always this issue with gaining traction and momentum." Severson describes a chicken-or-the-egg problem where companies need social buzz to get funding, but are often unable to generate that without money. "Really good companies were falling under the radar."
That’s when Severson got the inspiration to take social influence measurement and apply it to something more than just advertising (or vanity). "People who track social influence really don’t have the ability to close the loop. They don’t have the ability to follow it all the way through to conversion. Klout (which has now partnered with Wahooly) is stopping at the retweets and the replies. But influence is not necessarily getting people to respond to the things that you’re saying. Influence is actually getting somebody to make a decision, influencing them to sign up for something or purchase something or download something."
Severson is aware that the traction generated by his social investors might be viewed as artificial, but says his model is no different than the Angel investment market. "We’re emulating the things that Angels do for their investments that help improve growth. We’re just doing it on a much larger scale in a different way. All we’re asking them to do is protect their investment." In addition, Wahoolys users are doing more than simply drumming up support then exiting after a year (a practice some fear is causing another tech bubble like the one we saw in 1999). They are also rewarded for providing feedback and experimenting with the product, so the startup will have more to show for its Wahooly experience than just short-term traction: It might also have a better product, which is good for the company, consumers, and the tech industry in general.
Wahooly currently has four startups under its wing, including RAVN, an event-discovery app, Cull TV, a web-based music video channel, tweetTV, a social TV platform, and Valu Valu, a personal investment tool. Because Wahooly’s business model is so new, it’s difficult for Severson to predict exactly how it will scale, but by 2015, he hopes to have 3,000 startups using his service. Already, Wahooly’s startups have experienced the benefits of being a part of the organization. "TweetTV raised $750,000 in a seed round as a result of being on the Wahooly platform, which was a really proud moment for us."
But ultimately the benefit of Wahooly is as much to the users as it is to the startups. "98% of the population has not been able to participate in private equity," Severson says. "Government regulations say if you’re not an accredited investor, you cannot invest in private companies (on paper, Wahooly is the sole shareholder with its users benefiting by proxy). Screw their approach, we’re gonna start our own approach and say that social influence is worth something."