Crowdfunding, Venture Capital, and Angel Investing: Complementary or Competition?

BY SALVADOR BRIGGMAN CEO Crowdcrux.com , CB Insights published an interesting article on August 11th, 2014 about the 443 hardware projects that have raised over $100K on Kickstarter or Indiegogo, as studied by Matthew Witheiler of Flybridge Capital. The CB Insights team expanded on the collected data by examining how many of the 443 companies have raised outside venture capital equity financing.

So far, of the 443 companies, 9.5% have gone on to raise venture capital to the tune of $321 million (total). Also, they discovered that Kickstarter hardware campaigns raised 5x more in investor funding than Indiegogo campaigns.

What’s crazy is that these numbers are only increasing!

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“In 2014, investor deal activity to crowdfunded hardware companies is on pace to break 2013’s record with 19 deals already in the first seven months of the year. If the current run-rate continues through the end of the year, 2014 will see over 30 deals.” – Source.

There’s been some speculation in the past that equity crowdfunding might replace angel or venture capital investing for startups. Particularly, the JOBS Act, which when in effect, will allow ordinary americans to invest in startup companies, has been seen as a potential disrupter for well-established financial industries.

Will equity crowdfunding replace angel investing?
First of all, I think that Ryan Caldbeck, the CEO and founder of the equity crowdfunding platform CircleUp did an awesome breakdown of the benefits and drawbacks of equity crowdfunding for angels angels and VCs in his Forbes article.

Who are the Angels:

– Typically invest less than $1 million in startup companies.

– 756,000 angel investors in the U.S. who have made an angel investment in 2013 (source)

– Wealthy individuals that make $200,000 or more in base salary every year, or maintain a net worth of over $1,000,000.

– 5-7.2 million accredidted investors in US that could participate in angel investing (2013).

Their main issues:

– Good deal flow (identifying and getting in touch with quality companies) – See Paul Graham’s essay on how to be an angel investor.

– Lack of investment liquidity.

– Potential for being diluted at later stages in the startup.

In its current form, equity crowdfunding enables angel investors to find new quality companies and cut deals. Just look at the recent PonoMusic equity crowdfunding offering on CrowdFunder, which has raised $3.6 million from accredited investors at the time of writing.

Read More:

http://www.crowdcrux.com/crowdfunding-venture-capital-angel-investing-complementary-competition/

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