What VCs Really Think Of CrowdFunding ?

download (2)

By Lora Kolodny WSJ Blogs

New financial regulations that let startups or funds raise capital online, and broadly advertise that fact, are shaking up the early-stage investment scene. Now venture capitalists are taking a closer look at equity crowdfunding.

In what appears to be a first for venture capital in the U.S., early-stage fund Foundry Group said last week it would commit $2.5 million to equity crowdfunding deals via the AngelList investment platform.

The effort, called FG Angels, makes use of a new AngelList service called Syndicates, which enables an individual accredited investor or a fund to create, in effect, a mini-VC fund online.

With AngelList Syndicates, a firm like Foundry Group or a prominent individual investor like Jason Calacanis can invest their own money in a startup and raise additional money on the company’s behalf. People who join their syndicate invest automatically in their deals, and agree to pay them “carry,” or a percentage of future returns from those deals.

For investors with a good reputation and a following, the appeal is that it’s easier and faster to form an AngelList Syndicate online than to form a venture capital or seed fund, which entails the writing of a private placement memo, locking in limited partners  and more.

Aside from Foundry Group, no traditional firms have publicly aligned with and committed funds to an equity crowdfunding platform in the U.S.

Foundry Group Managing Director Brad Feld says his fund’s limited partners responded favorably his firm’s initiative. The firm is investing from a fund of about $225 million, and the FG Angels piece of that is $2.5 million which partners view as “additive” to what they are already doing in seed-stage deals, he said.

Dave McClure, founding partner of the global seed fund and accelerator 500 Startups, says with the exception of Foundry Group, most venture capitalists are downplaying the importance of equity crowdfunding and syndicates.

Mr. McClure said, “[Traditional VCs] may disavow how much impact [equity crowdfunding] is having right away, but definitely it’s moving the needle.”

By giving the best angel investors a chance to become a VC without having to raise a fund right away, he believes AngelList Syndicates will “put crappy VCs out of business, and put pressure on seed investors in general.”

Should VCs be truly worried about a competitive threat? Or should they embrace these platforms to make deals online?

We asked notable investors – both from the traditional venture world and new platforms – for their predictions about how equity crowdfunding will impact their industry.

Alfred Lin, Sequoia Capital

Crowdfunding is great and is coming at the right time. In general, the cost of starting a company has come down so that someone interested can come out of school with an idea and get crowdfunded. That’s great for idea generation, prototyping and the like.

Alfred Lin

But we also know it’s harder and harder to build a company. If you have a good idea there will be nine competitors now. Trying to help a company or founder you think is special to get above the noise is job one for VCs.

Equity crowdfunding will probably have more of an impact on seed rounds versus venture rounds. People will ask the question: Will this hurt returns for investors?

We’ll have to up our game and I think we have been, at Sequoia at least.

Equity crowdfunding platforms can complement and provide a signal to us, in much the same way that Kickstarter and other rewards-based platforms have done already. The information in those platforms should be interesting to VCs. How you separate signal from noise is a much deeper conversation and we’re all thinking through that now.




Tags: , ,


FortuneUncensored Social Network Gab Raises $1 Million in Crowdfunding CampaignFortuneA crowdfunding campaign for Gab, a Twitter-like social network that touts its commitment to freedom of speech, surpassed $1 million yesterday. The company claims it is politically neutral and committ [...]

U.S. News & World ReportNo Cash for Hate, Say Mainstream Crowdfunding FirmsU.S. News & World ReportThe block on mainstream crowdfunding is just the latest blow to far-right activists operating online. In the last 24 hours, neo-Nazi website the Daily Stormer had its domain regi [...]

Baltimore SunHarford still opposes crowdfunding sites for school donationsBaltimore SunRaising money through online crowdfunding sites is an ideal way for teachers to find the funds to purchase classroom materials and should be restored, the head of the Harford County teachers' u [...]

Crain's Cleveland Business'Smaller' gifts can go long way for Clinic's crowdfunding platformCrain's Cleveland BusinessFor an institution accustomed to securing multimillion-dollar donations, Cleveland Clinic's latest fundraising effort has some relatively [...]

FortuneDreamHost Sets Up Crowdfunding Page to Aid Trump Government FightFortuneThe Los Angeles-based web host DreamHost, which is fighting the Department of Justice over its attempt to seize records of visitors to an anti-Donald Trump website, has launched a crowdfunding campaign to a [...]

DualShockersBounty Battle Rolls out the White Carpet with Successful Crowdfunding CampaignDualShockersWhen we last checked in with the indie-obsessed fighting game, Bounty Battle, it was halfway through its $30,000 crowdfunding goal. Now with 3 days left to go, it's surpassed thi [...]

ForbesWhat Works In Equity Crowdfunding -- Insights From ResearchForbesAs we have recently celebrated the fourth anniversary of the signing of the JOBS Act into law, it is a good time to take stock of the effect that the legislature had on equity crowdfunding in the United States. It [...]

Deccan ChronicleHow to make crowdfunding work?Deccan ChronicleVarun, based on his experience, also says, that people new to crowdfunding should not be complacent with their campaigning — “I've seen a lot of people, who just think that crowdfunding is free money. They have a very [...]

LITTLE GUIDANCE FROM IRS ON TAXING CROWDFUNDING CONTRIBUTIONSBloomberg BNAWhether it's a musician raising money to produce an album, an inventor with a great idea, or a family in distress that needs help, crowdfunding through platforms such as Indiegogo and Kickstarter has become [...]

Brick City LiveWOMEN-FOCUSED CROWDFUNDING PLATFORM IN NEWARK IS ACCEPTING ITS FIRST COHORT OF ...Brick City LiveA new women-focused crowdfunding platform has just launched in Newark and is accepting businesses into its inaugural cohort. iFundWomen is a crowdfunding platform specifical [...]

CFB Finance


  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |