Tuesday, July 17, 2018

Investment Crowdfunding Helps Startups Generate Future VC Funding

How is investment crowdfunding helping generate more and bigger investments by VCs? See my comments in this post on WRALTechwire.
About Mark Easley

The three venture funding reports listed in the article are very interesting posts, and it is great to see this strong trend for our North Carolina businesses. I am sure there are many reasons for the increase in venture funding, including more money than ever is available from existing and new venture funds, and we have a very vibrant and active startup community in the Triangle and around the state.

In my opinion we now truly have one of the top startup ecosystems in the nation, allowing us to rank right up there with places like Austin, Boston, Seattle and Atlanta as places where startups want to be and investors want to invest. The strong consideration of our area by Apple and Amazon reinforces that belief.

Of course I view things from the investment crowdfunding perspective, and I think that has made a contribution to the growth of the venture capital market nationwide in a couple of ways:
  • A larger pool of potential companies for the VCs to back. Many companies that are too early stage for most of the VC community have been able to prove their value proposition and achieve important metrics with seed stage investment crowdfunding rounds. So this is providing a larger pool of pre-vetted companies as they move to the Series A and later stages where the VCs like to participate. About the same amount of money is now being raised by companies with crowdfunding as is being raised from early stage angel investors, so the available pool of seed stage funded startups is now much larger.
  • Earlier exit opportunities. The investment crowdfunding platforms have begun to create secondary markets for the stock of these startups. Before, it usually took 5 to 10 years for even a very successful startup to be acquired or have an IPO. But now the early investors and startup employees have a new alternative to getting some of their return earlier. They can sell some of their stock as a secondary offering on one of the investment crowdfunding platforms (Microventures.com in Austin has been a leader in this area), or they can use the Federal JOBS Act Regulation A+ to sell up to $50M worth of their stock as an investment crowdfunding round in what is known as a “Mini IPO”. A percentage of the stock can be from early investors and employees.
Both of these developments are helping the VCs to raise money for their own funds and then invest it in startups, because there is a larger pool of pre-vetted startups to put the money to work, and the potential for some quicker returns on investment. The effect of these developments is not that large yet in North Carolina, but I think it will grow into a significant factor here soon as it has in places like Silicon Valley, Austin, Boston, Seattle and Atlanta. So our startup community has a strong future ahead of it.