by Kari Hamanaka, If there’s no love coming from the angel and venture capital community, there’s always crowdfunding.
And the rising investment channel — including popular sites such as Kickstarter and Indiegogo — continue to gain traction and respect from serious companies and investors alike.
That was the theme of a panel presentation that included perspectives from all sides of the equation at last week’s International Bar Association’s “Silicon Valley From Start-Up to IPO/Exit Conference” in Santa Monica, Calif.
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“What we’re doing at Crowdfunder is we’re really turning early stage funding, which is more of a black art, into a science and asset class that’s both investable by an individual who’s looking to diversify,” Crowdfunder Senior Vice President Rafe Furst said during the panel.
Crowdfunding, which got its start helping creatives raise funding for their projects online, hasn’t gotten the respect from the investment community some say it deserves. Some view the vetting process of a company looking to raise money as not as rigorous as more traditional methods employed by venture capitalists or angel investors. Those views may still hold in some circles even as crowdfunding takes off, but opinions are beginning to change.
Muizz Kheraj, senior vice president in the Santa Monica office of investment bank FocalPoint Partners and a former engineer at several technology companies, said his firm primarily focuses on the midmarket but more recently has been working on early stage deals.
FocalPoint is now working with an entrepreneur on sourcing funding, and it’s become a question of going the traditional route or tapping into crowdfunding.
“I’m looking at the situation that we’re in right now where we’re helping our entrepreneur either source funds through [crowdfunding site] Our Crowd or source their funds from traditional VCs, and it’s a competitive space,” Kheraj said. “And Our Crowd is coming forward with a competitive offer, and the VC world has to respond or they’ll get pulled back on this opportunity and it will go to the crowdfunding channel. I think we respect it as an opportunity and as a channel that’s out there.”
At the same time, from an investor standpoint, the decision to fund a company online should not be taken lightly, Kheraj said.
“I think the downside thus far is to the investor because you’re not going through a much more [rigorous] process,” he said. “You probably don’t get as much information as you need, although you think you might have the right information set. And it’s not an arm’s length transaction so it is a little bit riskier to the investor at this point. I’m sure there’s a lot of investors that are successful, but when I view it and I view what we go through and what our process is to raise capital, there is a lot more diligence that happens on our side of the world than I can imagine happening in the crowdfunding world.”