How Crowdfunding Is Changing The Investor World
There has been lengthy debate lately with the new crowdfunding bill. Entrepreneurs know what’s in it for them, but how is the investor side of the table reacting?
We took this exact question to Rod Turner, Founder of START.ac (a crowdfunding platform for technology startups), 6x entrepreneur of 3 IPO’s, and active angel investor, to get his take on how recent happenings in crowdfunding are shaking up the investor world.
“Our members are actually looking forward to the revolution. At least 25% have asked to be mentors as well. They’re viewing crowdfunding as complimentary to the VC and angel investor world. It’s a chance for many of our mentors – who are often experienced angel investors too- to break down the geographical barriers that traditionally accompanied investing, and re-engage themselves in the startup community”, Rod tells us. And the venture capital industry?
The venture capital industry is narrow, mostly targeting later stages and larger investments, on average $30 billion per year representing the entire industry. Angel investing is more expansive, but also investing on average $30 billion per year. Rod, and many others, believe the venture capital industry will remain virtually unaffected for these reasons. “It’s just going to open a new channel for a funding gap that wasn’t previously being filled.”
It’s possible the crowdfunding revolution will stir up an entirely new class of investors: your average upper-middle class individual, bringing in about $75,000/yr in annual income. With the new crowdfunding laws taking place in 2013, that individual would now be able to invest up to $3,750 in a startup (10% of their annual income). That may not be much for some businesses. But for a tech startup that may only need $5,000 to get a working prototype, or even the single mom needing off-hour childcare to make it to her first business meeting, crowdfunding might just be the difference between start or no start.
Another entrepreneur believes crowdfunding’s going to help him afford to raise bigger money from real investors:
Dan is 29 years old, the father of a 2 yr old, and the CEO of a new technology startup. What would he do with an extra $3,000? Dan laughs, and comments: “Probably just helping me with the costs to raise an investment! By the time I fly to California, pitch one investor and come back, I’m getting an angry call from my wife that her credit card’s been denied. My only employee is sitting on my doorstep with his hand out for money. The investor I just spent a couple thousand dollars coming to see, well, his schedule just got jampacked at the last minute. He gets a call, and asks me to come back next week. For those of us that don’t live in a startup hub, the money’s still available, it just costs us more upfront to raise it”.