Why crowdfunding fits in with Angels, VCs

Ryan Caldbeck has plenty of reason to think crowdfunding can play well with the existing funding ecosystem. After all, he runs CircleUp, an equity crowdfunding platform focused on consumer and retail companies.

But his position at CircleUp, and previous 10 years in private equity, give him pretty good insight on just how crowdfunding will work with angels, VCs and private equity firms. He shares that insight in a post on Forbes and finds, perhaps not too surprisingly, that crowdfunders and existing players will actually play well together.

For angel investors, he sees crowdfunding as a boon because it will produce deal flow more easily than the current system. Here’s Caldbeck:

We have found that angels love well curated equity-crowdfunding sites. Why? The answer is deal flow. Sure, there are a handful of angels in Silicon Valley (think Ron Conway) who see great tech deals before others and who have established such a prominent brand that companies come calling on them. For the vast majority of angels, however, and especially those outside the friendly confines of the Valley, it is both difficult and time consuming to generate quality deal flow. This is where great equity crowdfunding sites come in: a well curated site saves time, and extends the reach, for angel investors.
VCs, he writes, won’t be much affected by crowdfunding, because they’re focused on tech companies, there’s already plenty of funding out there for quality tech firms, and if a tech firm has to go to a crowdfunding site to raise money, chances are VCs would pass on that company.

As for private equity, Caldbeck thinks the deals on crowdfunding platforms just aren’t big enough. Here he is again:

Many private equity firms are already strong advocates of equity crowdfunding sites. In a space like consumer where we are focused, there is virtually no PE firm that can invest in companies with less than $5 or $10 million in revenue (which is exactly why we created our platform). However, as an investor at Encore Consumer Capital and TSG Consumer Partners, I received phone calls every day from growing consumer companies with $1 million in revenue that I would have to turn away. Now, PE firms can refer this deal flow to a trusted equity crowdfunding site.
Ultimately, those companies that raised money on crowdfunding platforms will be favorably disposed toward the private equity firms that referred them, and when they get big enough, may be willing to do deals with those firms.

Source: Kent Bernhard Jr. – Upstart Business Journal Money & Finance Editor
Link: http://upstart.bizjournals.com/money/loot/2013/08/09/why-crowdfunding-fits-in-with-angels.html?page=all


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