Karan Jain of Clovest interviewed by MCN on July 16- 2013.
Clovest is a innovative crowdfunding platform that allows for consumers and patrons of local businesses to help finance growth projects for local businesses.
Is Clovest in business?
Yes, our platform went up in March. We spent most of our first month building partnerships, following up on early leads, and approaching new clients. Our first project fundraising campaign went live in early April and we launched our second one in mid-June (you can view that and fund it here: bit.ly/nurishdc)
Who are your customers?
Our customers are local businesses who want to raise money to finance their growth. These businesses come to us seeking an alternative to traditional avenues of raising capital, such as expensive credit cards and banks that don’t lend in the small amounts they need.
It is also interesting to observe the relationship between these businesses and their customers (who are often funders of their projects) at this early stage in our development. The businesses understand that we are providing zero interest loans, but their customers aren’t always as fully aware of this structure. This is normal though, because most people are unfamiliar with this loan-based model of crowdfunding, which repays your principal instead of giving you a discount on the product or some other sort of perk.
What are your annual revenues?
Since we’ve only been up and running for such a short time, it’s hard to give a good estimate about what our revenues will be. There are a number of variables in play, but it will depend heavily on the number of projects we host as well as the average funding amount.
But I can talk about how we generate revenues. We take 7.5% of the total amount raised as a one-time fee once the project has been fully funded. This also includes all of the associated transaction costs in funding the loan and facilitating repayments to funders.
What problem are you trying to solve? What is your solution to the problem?
We are trying to solve the problem of insufficient financing for small businesses, especially in smaller amounts (under $100k). Right now business’ core financing options are banks, which don’t lend in small amounts, and credit cards, that often have interest rates in excess of 15%. Additionally, small business financing, in our view, is also too strongly focused on numbers and less on relationships. We’re trying to change that.
When you look at the social finance sector in general, there is a movement to bring more transparency between the parties in financial transactions and fostering relationships as part of the process. By doing so, you create positive interdependence between the parties involved. In our case, when the community invests in their local business, they not only want to see the business prosper, but also benefit when it does so. Our aim is to foster more personal relationships between local communities and small business’ while also helping them meet their financing needs.
How did you become interested in that problem?
While in college I studied economics and international relations, and after I graduated I started working at the Federal Reserve. While I was there I worked on policy and economic research while also honing my technical and web development skills. During that time, I realized that I was, in fact, much more passionate and interested in community-based economics than the international economic trends I was following. I had also grown frustrated with the fact that, after living in D.C. for several years, there was no easy way to invest in the local economy. Out of that experience, I quit my job and pursued this endeavor to build a funding platform that strengthened local economies and provided small businesses with financing.
Has the William James Foundation competition and mentoring program helped you? If so, how? What did we do well? What could we do better?
I really appreciated the hands off nature that was present for a large portion of the competition. They forced me to sit down and write a business plan – a very worthwhile process which admittedly required some coercion – but after that I felt like a big part of the competition was saying “now get out there and build your business.”
Every few months, when I received the feedback, I was able to better incorporate it into where my business had grown to. For example, with the second round of feedback, there were suggestions that I had already implemented while waiting, which further reinforced those decisions. And then the feedback went on to show me the next steps that I needed to take. So I was very appreciative of the timeline of the feedback cycle.
The judges’ feedback has also been really valuable in that I have eight different sources of approval and constructive criticism regarding my business plan. It’s basically like having a board of advisers meeting every three months without having to build that board by yourself.
I’m also excited about the connections I’ve made throughout this process. Some of the relationships are still yet to be developed and I’m excited to use the gathering as a way to connect further with people I’ve talked to throughout this process.
And like I said before, there was the overall benefit of just having a business plan at the end of it all.
What are your major challenges?
One challenge I’ve seen is learning to navigate how businesses feel about running a fundraising campaign. My background is in technology and quantitative analysis, not marketing. Getting businesses to understand how to best use our platform to market themselves and their campaign has been a definite area of learning, and we’re constantly improving our offerings over time.
Though we provide the tools and advice to advertise funding campaigns, we don’t want to be running the campaign for businesses, as it’s very important that they build these relationships with their customers themselves. So it’s been a challenge in that the “one size fits all” approach doesn’t apply when it comes to running a campaign as different businesses are more comfortable with the marketing required in successful fundraising. In the long-term we have to create an approach that works for businesses that may not have the strongest marketing backgrounds to do this outreach effectively. For example, some of the businesses we work with don’t have a strong social media presence but are still very involved with their local community and have a strong customer base. So it has been an interesting challenge to work with a customer base that isn’t used to interacting with the business through an online platform.
Some other questions we focus on are: how do we continue to keep costs down for businesses, and how do we leverage technologies of online interactions to build offline relationships? For the latter, this involves changing the preexisting idea of crowdfunding as a one-time web-based transaction to a framework in which businesses continually build trust with their funders by repaying their loan over time.
What other resources have you found that are particularly useful for social entrepreneurs?
I’ve found that the business associations around town have been a great resource. They’ve helped us develop a pipeline of business projects and provide feedback and support throughout the process. Some of them are our official partners including Think Local First DC, Union Kitchen, and Main Street Takoma.
Anything else you’d like the William James Foundation community to know?
Clovest, as of July 8, is an incubated venture of City First Enterprises. We’re very excited about this opportunity and think it makes a great fit, as they are an organization dedicated to “incubating social finance ventures”. Additionally, our founder Karan will be providing them with technology consulting and advice on their crowdfunding initiatives in his role as Entrepreneur-in-Residence.