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ALT/loan: entrepreneurship as an alternative to college

Combining education and seed money to launch young people on the path of entrepreneurship.

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11 19

Written by DeletedUser

ALT/loan is a college loan alternative for young people who have a clear idea and need a little help to get started. 

Size: $15-30k, dispensed in $5-10k increments.

Return: ALT/loan is priced similar to a private market college loan (10-15%)

Use: Funds will be spent according to a predetermined plan that is approved when the funds are released, with an allowance for some changes in response to business learning. Unlike traditional small business loans, funds can be used towards business-applicable education and non-capital start-up costs like website design or space leasing.

Accountability: Spending of funds will be closely monitored through a Mint-/Xero-like interface (most banks and credit cards have the core functions already in place, e.g. enabling users to tag expenses with specific categories).

Risk: These loans have a similar accountability as student loans (i.e. do not go away with standard bankruptcy), reducing the likelihood of default. For students, the risk of being saddled with unreasonable debt is reduced by the cap on the size of the loan and the education involved with acquiring the loan.

A four-part campaign to introduce ALT/loans to the market

  • INSPIRE: partner with local workforce investment boards, community colleges and high school career centers to increase visibility of the option of entrepreneurship as a career path. Digital and physical resources like Business Model Generators and the Board of Innovation templates make space to test assumptions and start building a business plan. Before ever stepping into a bank, prospective entrepreneurs can play with different inputs to think through the fixed and variable costs of the business they want to create and imagine what they could do to make it grow healthier. (Similar to SmartAsset/YourSQFT)

  • LEARN: partnering with local business school business simulators and/or partner with start-up incubators (e.g. teensintech, Ycombinator, startup pirates), give youth a trial-by-fire experience of starting a company and lay the groundwork for a successful start. At the same time, completion of one of these projects shows the lending bank the dedication of the applicant. Applicants can also prove their commitment by demonstrating a track record of serious involvement with an activity related to their business and recommendations from the people they worked with in those contexts (e.g. sports coaches, past customers)

  • FUND: Qualified applicants receive ALT/loan for $15-30k, based upon a business plan with clear milestones to release funds. Unlike traditional small business loans, ALT can be used for targeted training and start-up costs.

  • EXECUTE: Progress is monitored through mentorship and digital monitoring of funds through online bookkeeping system. Mint-/Xero-like tool gives the business-owner the information they need to stay on-top of maintaining and growing their business. It also gives the bank data on the health of their investments and gives them a chance to help nudge the business back on-track if something has gone haywire. Mentorship comes from continued partnership with local business schools, whose student's have real-world business experience and would benefit from the experience to be a valued advisor. Eventually, "graduate" loan holders also begin to mentor loan holders and visit local high schools to inspire the next generation.

EXAMLE ALT/loans
Lisa has been a budding yogi since she discovered at the YMCA a few years ago. She is inspired by Outstanding in the Field and wants to heighten the experience of yoga by taking it to unexpected spaces. She has talked with a neighborhood museum that seems open to the idea, and she has her eye on a rooftop garden, but she needs seed funds to become a certified instructor, buy basic insurance, rent the space and get the word out. A $15k ALT/loan is the perfect amount to kickstart her business, and she ends up partnering with her business school mentor to scale the company to new markets in Europe.

How will your concept support young people as they transition into the world of work?

This loan system would help young people to transition from a great idea to something real. It helps to lay-out the steps they need to take and plugs them into the right resources at the right time.

What online or in-person components of your concept will best support this transition?

The in-person resources in the form of information in schools, business simulators, and mentorship help create a clear pathway to move people from INSPIRATION, to action and success. One of the benefits of college is that it is a KNOWN path with clear requirements, processes, and feedback. This program gives the benefit of some of that structure beyond the classroom.

My Virtual Team

Stefan Ritter Brandon McNamara Andrew Li T. Anni Nguyen Mira Rao Noam

11 comments

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DeletedUser

Apparently Richard Branson is pushing an idea like this in the UK!
http://www.ft.com/cms/s/0/789e5354-6d28-11e1-b6ff-00144feab49a.html#axzz273aH3pF7

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DeletedUser

This feels like a game-changing idea that helps young people with a skill very rarely taught - managing budgets/making money - which is oddly what most people are employed to do directly and indirectly!

You seem to be working through the details of the loan, which is probably the hardest part. The expert panel asked "how you make young entrepreneurs aware of it" which is a good question. The benefit of this idea isn't just the people who are successful but everyone who learns from the process and other people's successes/failures. A few thoughts (from a marketeer):

- Find your communities of young entrepreneurs. Scour Facebook/tumblr/Twitter for those who are starting businesses - where do they hang out and ask advice for business plans and funding? Start reaching out to them and also seeding honest, non-intrusive messages in the right forums, etc.
- Build in a mechanic that spreads itself (cf. Kickstarter). Some form of 'gamification' could really help the concept broadcast itself, i.e. the top projects are opened up to a vote online where the project team need others to like/vote/recommend, or, a portion of funding needs to be generated online from donors with a bank/creditor matching or topping up (again, creating visibility from a wider group of people and passing on the idea of ALT/Loan)
- Identify advocates and influencers; who is famous for championing and celebrating young entrepreneurs? This can be everyone from governments & Bill Gates to local businesspeople. These people will actively communicate your idea as they personally believe in it, they will also likely contribute skills and time
- Find business partners (e.g. bank/creditor) as they will lend credibility and often funds for marketing materials
- Develop an information pack/program for schools & teacher advocates. The process will get smoother when its repeated. Schools are also well set-up to host events and workshops, as well as having the right audience you want to speak to.
- Find charity partners (e.g. envision/IntoUniversity/Young Enterprise in UK) which work with young people and probably already have access

Hope that sparks some ideas!

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Fab collaborative conversations here guys – great to see this concept grow!

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DeletedUser

Hi Erica -

Congratulations on being selected for refinement!

I noticed the committee had feedback specifically to “how you intent to position this product in the market and make young entrepreneurs aware of it?”, so I thought I’d address those with some ideas...

HOW TO POSITION

One question I have is, would this be targeted towards young entrepreneurs who are already getting revenue with their venture or are they pre-revenue and still trying to identify a profitable business model? The reason I ask is that I think you’d need different resources depending on who you’d be targeting to. If I’m pre-revenue, I’m probably more interested in learning a white space in the market and how I’d build my product. If I already have revenue, perhaps I’m interested in how to scale and grow my businesses.

On the bank side, what if you targeted this program for small to medium size banks who were looking to expand their community development? This could be a customized program they could adopt without having to establish the framework and the technology. Similar to Stefan’s comment, what if they partnered with local angel investors who’d be able to help share some of the risk and expert network?

I thought this article below was good at explaining the challenges that banks have with making small loans, perhaps this could spark some insights on how to navigate around it:

http://boss.blogs.nytimes.com/2011/09/06/a-banker-explains-why-small-businesses-have-trouble-getting-credit/

HOW TO MAKE YOUNG ENTREPRENEURS AWARE?

In the US, there are events called Startup Weekends, where a bunch of individuals interested in building a product gather together for 48 hours. I’m thinking your program could be a sponsor and be a part of the prize for winning teams.

Also, there seems some benefits of working with entrepreneurship centers. here is a link to a google search for them: http://bit.ly/Rj136i

Lastly, perhaps you could partner with entrepreneurship education services? Here are a few:

http://www.kauffman.org/
http://fi.co/
http://www.techstars.com/

Good luck and I look forward to seeing your progress!

Spam
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DeletedUser

Thanks for the thoughts!

The New York Times blog post is really solid. I was thinking about possible ways to reduce overhead in evaluating risk, and the last few paragraphs seem to suggest that big banks could be more interested in these loans if the business risk profiles can be sufficiently modeled by computers. I've been focusing more on the strengths of larger banks (e.g. their advantage to strategically grow new lines of business that benefit from large volumes of transactions and information) partly because Barclays' involvement in the challenge.

The Angel concept is an interesting one...it seems like a slightly different concept because most angels expect a higher average return than 6-8%, but angels might be very good follow-on investors post-micro-loan for riskier businesses.

I couldn't agree more about leveraging the growing number of start-up centers, bootcamps and incubators. It's a great time to start a business!

Spam
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The bootcamp and the mentorship can be methods through which the bank assesses the risk it would incur from lending to the applicant. The bank can then adjust the size of the loan and the interest rate accordingly.

For example, if the applicant does well in the bootcamp and the mentor can see that the applicant knows how to handle a business, the bank may choose to lend more to the applicant at a lower interest rate. Both parties benefit as the risk for the bank is reduced and the applicant is able to get a more generous loan.

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DeletedUser

We are completely on the same page. :-) I was thinking about other ways to reduce risk for the banks...I'm wondering if there are some newer business models (e.g. ecommerce, some types of services) that have risks and milestones which are beginning to become more predictable, the way that banks have long understood more traditional businesses like restaurants and coffee shops.

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Photo of Stefan Ritter
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Hey Erica!
Great that our concepts made it into refinement, let's think together!
I love how your concept helps young people get a feeling for business before they apply for a loan.
The feeling i got from my feedback, is that it's a challenge to come up with a value proposition for banks high enough for them to actually take the risk of supporting someone so young & inexperienced.
More and more I am getting the feeling banks are experts in late funding, and maybe it's better if it stays that way?

Your support platform will come in handy here:

Maybe the mentors will be able to help find alternative funding possibilities. Potentially this platform could be integrated into crowd funding platforms such as kickstarter.com?
There was recently a project that manged to get 8million $ funding!
http://www.youtube.com/watch?v=Xa2TC83Vp5g
http://zombiegamer.co.za/ouya-kickstarter-closes-on-a-massive-8-million

Obviously they had already invested allot into building prototypes and come with experience, but that's precisely where your platform could come in!
The mentor network could be successful kickstarters who are willing to share their experience back to the community.
What do you think?

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Photo of Mira Rao
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This is a great concept! Would the students work directly with the banks, or would there be an intermediary (probably non-profit) organization that would accept the loans and then work with the young clients to train and mentor them? This concept blends in nicely with Sasha Charlemagne's Lab 21 concept -- this could be the space where people can gather, collaborate, learn, and develop their ideas.

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DeletedUser

Interesting question...it probably depends upon how large this business would be for the bank: if they see making loans for non-traditional businesses as a growing part of their business then they should develop the competency to coach and increase the chance of success for young entrepreneurs. If it's a small part of the business, then it probably makes more sense for an agency that already has more experience with coaching and development.

I love the idea of connecting it to a collaboration space!

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Photo of An Old Friend
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Good idea of giving children the opportunity to become business men. This idea is great because it actually simulates entrepreneurship better than any computer program or school activity.