Why VCs Love CrowdFunding?

By, Steven A. Cinelli. CrowdFundBeat Sr. contributing editor August 18, 2014

With all the conversation about the perspective of the venture capital industry on the nascent crowdfunding space, it is becoming clear that VCs will be increasingly welcoming platforms that facilitate funding for emerging companies. Stop and think about it. Seed financing has the highest level of failure. The VCs and to some extent the angel community has played that role by providing pre-concept enterprises a bit of juice to test the waters. And as we know, the VCs get refunded based on their performance and/or long term reputational capital. So imagine an environ that enables seed stage companies access to capital provided, not by the VCs but rather the crowd.

dailystartup_D_20090806101628-1-250x174 (1)

Let the VCs enjoy proof of concept on someone else’s dime, and when traction is achieved, the larger money comes in with mitigated risk. Based on our data, crowdfunding is proving to be a blessing for VC dealflow. And with the Oculus and SmartThings acquisitions (both Kickstarter funded), VCs who aren’t upto their eyeballs in “proprietary dealflow” should probably be paying attention to crowdfunding platforms.

Here’s some other perspectives on VC and crowdfunding based on our recent crowdfunding report which may be worth a look: NY Times – Crowdfunding and Venture Funding: More Alike Than You Think BusinessWeek – How Kickstarter turned into a VC’s best friend Bloomberg – How VCs use Kickstart to kick the tires on hardware startups The Verge – After auditioning on Kickstarter, hardware startups raise hundreds of millions of dollars This is an absolute boon to the venture industry that has sucked wind for many years during the early part of the 21st century.

Read the Kaufman Foundation reports on venture investing, and the difficulties in producing alpha. Well, we are witnessing the best of all worlds for the venture industry. They can deploy capital later in the developmental process, so the likelihood of a success is improved. Might the VCs with their funding capacity be moving more into a role of hedge fund managers, limiting earlier enterprise risk, and capturing the fruits more consistently? The call for the John Q Publics to participate in the next Google or Facebook is a welcomed node of financing evolution for the VCs. Skip the early stage risk, let that be funded by either equity or perquisite oriented crowd participants, and then let’s go for the gold after proof of concept, and the resources to build something hopefully of value.

One must ask who are the winners and losers in this brave new world. It is becoming quite clear that avoiding the early stage risk, yet still commanding the lion’s share of capital provision and upside at a later time, should improve venture returns, but it seems like we are redefining the term “venture capital”. With multi-billion dollar funds, the key VCs are deploying tens of millions into portfolio companies at a time of scaling, not proofing up. A beautiful environment for the VCs. Those in the crowd? You have just displaced the VCs in taking the maximum risk, for which you are investing your own funds, while the VCs get paid to take risk receiving management fees and using OPM (other people’s money). While one of the desires of crowdfunding was to enable both capital formation for emerging companies, while also providing the opportunity for John Q to play early. Well, the game seems to be allow access to John Q at the most risky time, only to allow the big money to defer risk taking and step it up later on. Yes, the VCs love crowdfunding.

 www.crowdfundbeat.com

Also watch Video

Why VCs Love CrowdFunding,

http://youtu.be/wAB0woQ4vY4

 

Tags: , , ,

HEADLINE NEWS

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 [...]

Global Crowdfunding Market 2017-2021PR Newswire (press release)Global Crowdfunding Market 2017-2021, has been prepared based on an in-depth market analysis with inputs from industry experts. The report covers the market landscape and its growth prospects over the coming years. The rep [...]

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 [...]

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 [...]

ForbesMoney Makes Small Businesses Go Round: Ensuring Access For AllForbesIn 2008, a new form of financing — rewards-based crowdfunding — premiered. With money raised on crowdfunding platforms like Indiegogo and Kickstarter, startups and companies with a new product idea connect direc [...]

CNETKickstarter alternatives: Choosing a crowdfunding platform - CNETCNETCNET@Work: Before launching a crowdfunding campaign, it's worth exploring the differences between Kickstarter and its competitors.and more » [...]

Baltimore Business JournalCrowdfunding initiative for women-owned startups comes to MarylandBaltimore Business JournaliFundWomen, a crowdfunding platform dedicated to helping women-led businesses find support, is launching in Maryland in partnership with the incubator Betamore, PNC Ba [...]

SiliconBeatPayPal, crowdfunding sites cut off white supremacists, hate groupsSiliconBeatPayPal and some crowdfunding sites have joined other tech companies in cutting off hate groups after the deadly white supremacist rally in Charlottesville, Virginia, over the weekend. The Southern [...]

Indiana pioneers crowdfunding community projectsWTHRA downtown Greensburg mural made possible by community donations, Patronicity.com, the Indiana Housing and Community Development Authority and other local organizations, as seen on Aug. 3, 2017. (Main Street Greensburg Photo via ... [...]

Hybrid agent turns to crowdfunding to raise up to £250000Property Industry EyeIts 'front page' pitch says Vesper Homes is looking for investment of £100,000 in exchange for 8% of equity in the company. However, in the longer pitch document it says it is seeking £250,000, wit [...]

CFB Finance

Marketwired

  • 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 |