Collaborative Consumption Biz Models Take Shape

If collaborative consumption is all about getting people to share the resources they already have, what does that mean for entrepreneurs and investors looking to make a profit by selling something new? Victor Westerlind, general partner at the venture firm RockPort Capital, believes that in fact there is little conflict between sustainability and profits.

“If the population was static, then maybe total output might take a hit from reusing,” Westerlind said. “But the reality is the population is growing faster than it ever has, so the overall quantity of what will be produced will grow as well.”

The opportunity for collaborative consumption to open up new financing alternatives was underscored on Monday when Mosaic, a crowdsourcing company for solar projects, announced a new round of solar investments with estimated annual returns of 4.5 percent. The company’s previous round, which raised $300,000 in January, sold out in less than 24 hours.

“We see a massive transition coming from fossil fuels to clean energy, and we think people should be able to profit from that transition,” Billy Parish, Mosaic’s president, said in a press release.

The unexpected ways that investors and entrepreneurs are innovating in the field of collaborative consumption was the topic of a panel discussion titled “The End of Ownership: The March Toward Web-based Resource Sharing” during the Cleantech Group’s recent forum in San Francisco.

Rather than being a zero-sum game, collaborative consumption could simply encourage consumers to demand products that are more durable and backed by better warranties, since more people will have a direct stake in reusing and reselling them, said Adam Werbach, founder of the sharing website Yerdle. Werbach singled out personal printers, which often don’t receive software updates, and so they turn into “just a hunk of junk after 18 months of use,” he said. “That’s ridiculous. That should be illegal.”

Instead, the point is to translate the concept of “velocity of money” into the “velocity of goods,” turning things that spend the majority of their life in the back of our closets and the bottom of our trunks into revenue-producing assets for both consumers and investors in the sharing platforms.

Much of the discussion focused on the hunt for successful business models by companies that exist on the leading edge of consumer behavior. For Westerlind, that means finding entrepreneurs who understand the unit economics of whatever it is they’re trying to sell, and who have a “line of sight” toward a profitable business model.

“As an investor, we’re looking for progress,” Westerlind said. “We’re looking to see that you are working toward building up a community that you can then monetize. And when we lose patience is when we’re not seeing progress.”

The panelists also discussed the biggest opportunities they see coming for collaborative consumption. One is to build relationships with established retailers and large companies. In 2010, RockPort Capital participated in a $12-million round of Series C investment in Gazelle, an electronics recycling firm. The company is establishing relationships at retailers to give consumers the option of getting instant cash for their old electronics at the same point of sale where they’re buying new gadgets.

“Corporate partnerships really are critical on a number of fronts,” Westerlind said. “Corporations have customer relationships, they have channels, and there may be an opportunity for an exit.”

Werbach announced that Yerdle has completed a partnership with “a major retailer” to give discounts on back-to-school items this summer when consumers share the clothes and school supplies their children have outgrown on Yerdle.

At BMW, the carsharing unit Drive Now is about to turn a profit for the first time in Berlin, said Rich Steinberg, CEO of the business, but such success may take a while in the U.S. In the meantime, the program is bringing significantly younger customers to the brand, which makes it attractive enough that someday soon the software that enables BMWs to be shared “will be embedded in the car, as opposed to having to add it on later,” he said.

Yerdle has a number of potential revenue streams, Werbach said, including getting paid for shipping goods, and charging a small commission whenever it connects people looking to sell, share or trade goods outside of their social network. Mosaic, a crowdsourcing company for solar installations, also takes a commission on its funding rounds. While the SEC’s final rules regarding the JOBS Act may improve the company’s business model by enabling general solicitation of private placements and creating a new exemption for crowdsourcing models, such changes aren’t necessary for Mosaic to grow, said Billy Parish, the company’s founder and president.

“I’m really glad we made the decision to chose a regulatory pathway that doesn’t require legislation to move forward,” Parish said.

The panelists agreed that additional opportunities for collaborative consumption exist in developing countries. The cultures in many developing countries still value sharing, and this has not been replaced by more Western modes of individualist consumption, Werbach said. Another part involves infrastructure, since spreading renewable technology into a virgin market offers major price advantages over competing with traditional fossil fuels.

“We can help people leapfrog over the dirty infrastructure that will be very hard to replace,” Parish said. “To me the opportunity to finance projects where there is no energy infrastructure in place is one of the biggest impact opportunities on the planet.”

Successful investors and entrepreneurs in collaborative consumption may also find money to be made in spreading their newfound model. Mosaic is actively looking for business partners who can help it develop and sell its underwriting software to companies around the world.

“We get a couple requests a week from people who want to build our business model in another country,” Parish said.



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