

Venture Capitalists Prepare For The Impact Of Crowdfunding - acremades
http://www.washingtonpost.com/business/capitalbusiness/venture-capitalists-prepare-for-the-impact-of-crowdfunding/2013/02/22/7e8682d8-7c4e-11e2-a044-676856536b40_story.html

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dawernik
This article isn't really getting top tier investor opinions, but my
assumption is that they are taking crowdfunding quite seriously. To not
consider it disruptive to more formal capital would be incredibly out of
character with smart money - considering they look for these very
opportunities to invest. My guess is that the smart angels/VCs will try to
leverage the smart platforms or create them themselves.

10 years from now, few people will seek 'traditional' financing suppliers as
capital is about to get real efficient real quick. Bottom line is, this will
be excellent for businesses of all shapes and sizes.

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wmf
Why do you think crowdfunding is more efficient than VC? The liquidation
preference might be lower but you're also not getting any advice or
connections and there could be a significant investor relations time sink. If
I had a choice between VC and crowdfunding I would take the VC in a second. I
would look at crowdfunding if every VC passed, but that essentially makes it a
sucker's market.

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PakG1
Efficient here may simply mean efficient in the economic sense. As in, there
may be a lot of pent up money to invest in this stuff, but not enough deals.
At least, that's what investors keep telling me. Efficient would mean that
supply equals demand, and this would be a mechanism to make that happen.

edit: Also, on top of not enough deals, investors don't normally easily get
access. In the past, this was for the investor's protection, of course.
Theoretically, this would also solve that inefficiency. Again, in the past,
this inefficiency existed for the investor's protection, not a bad thing.

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argonaut
Firstly, that is not what "efficient" means in the economic sense. Efficiency
deals with prices (lowest costs, price = marginal cost). Yes, supply and
demand affects prices. But supply and demand in of itself does not deal with
efficiency.

I would also say it's a stretch to call this "pent up money." Equity
crowdfunding is merely an alternative outlet for your money (the usual outlets
being currency, bonds, public equities, etc.). You can think of in terms of
substitute goods.

Not to mention that most people have absolutely no business investing in
startups. All the best deals are going to go to the established, connected VCs
and angel investors who can add value in addition to the money invested.

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jonathanjaeger
Having a top-tier VC invest in you is an outside signal of credibility in
recruiting, PR, marketing, and other areas. VCs who are competing for the best
deals are creating new methods of adding value outside of "just a check." This
can't be replaced by crowdfunding, at least not soon.

Alternatively, take a look at a lot of the hardware/product projects on
Kickstarter. Those startups are using Kickstarter as a platform to show their
idea is wanted and credible. So then the VCs who passed on the risky venture
come in later after the idea is validated to a certain extent. They might not
see the same upside but they're also taking on less risk.

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janson0
I think many people over look the value of the network you get via the VC.
Start ups look to much at the money and not at the outside benefits of getting
plugged into a particular network. It is hard to believe that crowdfunding for
equity is going to really enable this same network effect.

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scottbartell
I really don't like that headline.. the subject of the article is not
crowdfunding, it's equity based crowdfunding. There's a significant
difference.

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kevinpet
I don't like use of the term "crowdfunding" to mean charity drives or group
buying. Those already have perfectly good phrases to refer to them.
Crowdfunding, that is, initial equity funding of a company by a large number
of small shareholders, does not have any other handy linguistic handle, _and_
it is the term used in the US law that this article is talking about.

TITLE III—CROWDFUNDING SEC. 301. SHORT TITLE. This title may be cited as the
‘‘Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure
Act of 2012’’ or the ‘‘CROWDFUND Act’’.

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confluence
I've said it before, and I'll say it again - equity based crowd funding is a
bad idea. It's a bad idea, just like easy e-trading was and still is a bad
idea back in the late 90's for the average investor.

You know why?

Normal people suck at investing. Period. They just aren't equipped to make
good investment decisions - they can barely handle regulated
housing/stocks/bonds. The average investor isn't trained in the most basic
aspects of finance, isn't qualified to determine the merit for an arbitrary
startup, often has a day job that is in a completely separate industry and is
just fodder for pump and dump, pyramid schemes and scammers.

Professionals aren't that much better - but that's a whole another discussion
(and they're playing with OPM).

This is just setting up bubble 2.0. It also reminds me of another odd thing we
have with investing. There's no minimum qualification or licensing needed to
become an investor. Odd - seeing as someone investing their live savings as an
individual is quite literally playing with what is in effect a life-time's
worth of money.

Now - I'm not against pre-orders for products/experiences - a la kickstarter -
which I think are absolutely brilliant, and other stuff that is seen as pure
consumption (not investment).

What I'm against is what stuff like this will lead to. It's the people
investing in Social Media Startup No. 3015 with $5 million in life savings at
a $25 million post valuation in 2016.

That's what's worrying.

