Some thoughts on making money from a portal

In my view, a business model for a portal needed to start with the value it created. In August 2012, I explained our thinking about payment and participation on Amino Kapital.

A business model for a portal with two sides

We wanted to bring together people seeking capital and people with money to invest. Both sides needed to be able to find something relevant on the marketplace.

I stressed that Amino was a business with employees and costs. I was a co-owner myself and had an interest both in helping entrepreneurs and in making the operation financially sustainable.

Start with the hardest side to attract

I considered investors the scarce resource. So we wanted to make signing up easy and free for them at the start.

We could then charge businesses that wanted to find and contact investors. I understood the criticism of charging the side that needed money, but believed that order was necessary for our model.

Payment wasn’t a guarantee of quality

I explained that we tried to remove unserious listings. I also said we couldn’t know whether all the remaining investors were serious.

In the longer term, I was also considering charging investors for access to contact people. That would generate more revenue once the marketplace was better established.

The prices, investor numbers and capital amounts in the video are our information and plans from 2012. The article describes the choice of model, not a current offer, an endorsement of specific investments or guaranteed access to funding.

A business model for a portal: Who should pay?

For me, a business model for a portal starts with two questions: what value do we create, and who is hardest to bring on board? I had been working intensively on Amino Kapital recently, so in August 2012 I used the project to illustrate how I thought about marketplace revenue.

We had been criticised for the model, and I could understand that. Why should someone who needed money pay to join while an investor could sign up free? It doesn’t sound particularly fair. But I believed the order was crucial if the service was going to work.

Amino was also a business with salaries and bills

I would have built Amino Kapital even if we didn’t make money from it. There was a need I wanted to address. But Amino wasn’t some charitable project that had dropped down from the moon.

At the time, I said we received no support from the municipality, the government or the EU. My rather bitter remark was that the help we got from the public sector consisted of being allowed to pay taxes, VAT and duties and spend time filing reports.

We had six full-time employees paid by the company. I owned sixty per cent. My partner Nikolaj and three other owners held the remaining forty per cent between them. On top of that, development in Manila, marketing, servers, insurance and rent all cost money.

I wanted both to help entrepreneurs and to have the service contribute to running Amino. The two things needed to work together.

I wanted to put the capital to work

I could see people who had money but lacked something to invest in, and businesses that needed capital. Some needed to get started; others needed to fulfil an order, grow or market themselves.

I was also very critical of banks after the crisis. My experience was that they had received public help but were now shutting off funding to businesses while looking after their own earnings and salaries. I presented that as my angry assessment. I wasn’t precise about which banks had been in trouble either, and wouldn’t turn that broad comment into a documented review of the banking sector.

Of course, I could see that banks are companies with shareholders and need to make money. How fair that was after public support was open to discussion. My own goal was to get some of the available capital flowing into Danish businesses.

The value came from letting the two sides find each other

For an investor, we could gather investment opportunities. For a business, we could gather people with money and an interest in projects. At the time, I believed we could create a directory on a scale the smaller Danish services I knew didn’t offer.

At that point, I mentioned 56 investors and around DKK 90 million that, according to their own information, they wanted to invest in the right projects. Those were the figures on the service at the time, not money already paid out or a guarantee that a particular project could get it.

That was the marketplace’s value: two sides, each with something the other lacked, could meet.

Investors were the scarce resource

Were there more people with money to invest or more people who needed money? I thought the answer was obvious. So investors were the most important side and the hardest to attract at the start.

If you need to attract a scarce resource, it has to be as easy as possible. I gave a hypothetical example: ask ten people to pay DKK 1,000 to appear in a new database they don’t know, and perhaps one says yes. If it’s free and they can find exciting projects there, perhaps five join. That illustrated friction; it wasn’t a measured experiment.

That’s why we made investor registration free. The downside was that spam, silly listings and unserious people could get in too. I kept an eye on it and deleted what I could see wasn’t serious.

That didn’t mean all the remaining investors were serious. I couldn’t know that. I could remove the obviously unserious material, but that wasn’t the same as endorsing every person or investment.

The other side paid for access to an interesting pool

Once investors were in place, we could invite businesses in. Then we had something to offer. That was the side that could generate the first revenue.

I understood the objection: isn’t it unfair that someone who needs money has to pay? Yes, I answered. But money needed to come in, and I didn’t think the model would work financially if we charged investors first and ended up with very few of them in the database.

The price for someone seeking capital was DKK 499 at the time. I thought that was reasonable and low. I compared it with American services that, according to my information, cost around 200 dollars, or about DKK 1,100 then. That was my comparison at the time, not an updated pricing survey.

The price was also meant to keep the least serious projects out

In my thinking, payment served another purpose. Few people would pay around DKK 500 to seek DKK 10,000 for a flat-screen television at home. It was meant to help attract actual projects rather than fill the database with nonsense.

I used very harsh words about poor projects. The crucial thing was that they could scare investors away. Once we had investors, I believed businesses would come. So we needed to look after that side of the marketplace.

I presented payment as a filter for seriousness. That isn’t the same as a paid listing in itself proving quality or making a project worth investing in.

The first revenue wasn’t the whole financial picture

I calculated an example with two new paying businesses a day at around DKK 500 each. That gives around DKK 1,000 a day and roughly DKK 30,000 a month. It was a scenario, not a promise of that revenue.

At the same time, I said development costs were around DKK 40,000 excluding my own time, and that I expected around DKK 60,000–70,000 once we had progressed further over the next few months. I might have put around a hundred hours into the work myself.

Including time and more of the work, I used a quarter of a million kroner as an example of the project’s total cost. Someone would also need to spend part of their working time on support and further development. My point was that you couldn’t just look at the first listing revenue and forget everything that needed paying for.

Later, investors could also pay to make contact

I could have chosen to raise the price for people seeking capital to DKK 995, for example. I didn’t think I would, because that could exclude some of the people we wanted to help.

Instead, I was considering another model once we reached around a hundred investors. They would still be able to create a listing free. Businesses that had paid to seek capital could continue contacting investors.

But if an investor wanted to contact a particular business themselves, that option could require payment. Then we could retain an interesting pool of investors while also earning revenue from those who actively wanted to seek out projects.

I mentioned DKK 995 or DKK 2,000 for an annual subscription as possible amounts, for example. Those were considerations in 2012, not a description of a finished or current price list.

Work out who brings the others in

It’s the chicken and the egg. I joked that you needed to bring in hens that could lay eggs rather than collect eggs that just sat there rotting. I also compared it to nightclubs that sometimes let women in free to attract more guests. It illustrated why both sides don’t necessarily get the same terms from the start.

For me, the question was: who do I need to bring in first so the others will come too? At Amino Kapital, I believed investors attracted businesses. The reverse order was less certain.

I said the same principles lay behind other Amino services, including Amino Freelancer. I wanted to share my strategy: identify the scarce resource, make participation easy for it, create value for the other side, and build revenue in an order that can keep the marketplace running. You can find more of my experiences of building businesses in Iværksætter til jeg dør.

Read also about my thoughts on free access and paid options.

Historical reference from 2012: The original Amino Kapital link now leads to Capino.

Best wishes, Martin

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