More alternative funding options for entrepreneurs

40billion.com is trying to fix a problem: the $40B gap between the total funds aspiring entrepreneurs require and the total seed funding currently available to them. By tapping into the social networks of the entrepreneurs, the hope is that additional funders can be found.

This is essentially a crowdfunding platform. Their pitch is that if your business requires $40,000 then you just need to convince 40 friends to lend $40, each of whom in turn just needs to convince 40 of their friends to lend $40. The first step is certainly plausible (Kickstarter is a great example); while I'm less convinced of the feasibility of the second step, this network approach may help you bring new people into the fold. The site allows you to put together a private network of potential donors who have access to your business plan and other supporting documents to make the case for why they should lend to you (anywhere from $40 to $10,000). It also can set up webinars for you to make your pitch to the crowd.

Probably the greatest benefit is that it takes care of the dirty work of formalizing the loan process between you and your friends and family members. It also probably saves time -- you can invite everyone to view your information in a single e-mail -- but while this impersonal approach may score you $40 from your aunt, I doubt that it would land any major loans. And then you need to rely on the second ring of your social network, where the ties are considerably weaker. Maybe you have a brilliant business plan that your dad's colleague is willing to get behind, but then why would he loan to you on this site rather than say, make an investment?

Which leads to the major point which is that this idea is fun and a good way to raise from your friends and family in a more efficient way, but start ups are extremely risky and I would bet that someone with means would rather invest than make a traditional loan. 40billion makes no comment anywhere on the site about the terms of their loans, but they do make it clear that they do not facilitate equity investments.

The bigger gap to me is the inability of amateur investors to invest in, not loan to, startups. When someone figures out how to legally facilitate micro-investments, that will be a game-changer.