In 2015, venture capitalists invested $58.8 billion in the United States, topping the figures for the previous two years by a substantial margin. In 2016 investors have been substantially more cautious, and if the current slowdown is a course correction rather than a blip, it will also be an important test for the nascent equity crowdfunding market.
Many equity crowdfunding platforms have sprung up, including AngelList, FundersClub, Wefunder, OurCrowd andSyndicateRoom.
To succeed, these two-sided markets need enough good investors to be attractive for entrepreneurs to post their ventures, and enough high-quality ventures to be worthwhile for investors to spend time and capital on them. If early-stage capital becomes tougher to obtain, only platforms that are surfacing high-quality deals and matching them efficiently will be able to keep growing.
A particularly interesting feature within the equity-crowdfunding world involves syndication between the crowd and a lead investor. Platforms that have introduced syndication, like AngelList and SyndicateRoom, have done it to address the problem of information asymmetry.
Joe Hadzima Senior Lecturer, Martin Trust Center for MIT Entrepreneurship
From The Huffington Post
When I read today that venture capitalist pioneer David Morgenthaler had died one of my first thoughts was the statement attributed to Archimedes “Give me a place to stand and with a lever I will move the world”. David moved the world in many important ways. As one of the first venture capitalists he used his own money to start Morgenthaler Ventures which he went on to build into a premier firm that invested in more than 325 startups. As a founding director of the National Venture Capital Association he helped shape the development of the industry, including leading the successful legislative effort to allow pension funds to invest in venture capital which vastly increased the capital available to innovative startups.
Concern is mounting that the venture-capital model might be broken. Returns have been relatively poor in the past decade. More importantly, perhaps, the innovation outcome has been somewhat disappointing. As PayPal cofounder Peter Thiel complained, “We wanted flying cars; we got 140 characters.”
One key reason for this might be the way venture-capital funds are typically structured. Such funds have been organized for decades as limited partnerships, raising commitments among external investors to be invested and returned within 10 years.
When Congress passed the Jumpstart Our Business Start-ups Act (“JOBS Act”) last year, the rationale sounded right: some “good ideas” don’t come to market because entrepreneurs often lack the necessary connections to privately raise significant amounts of capital. If they could get such funding, the argument went, jobs would be created. And that’s a good thing.
So part of the JOBS Act now permits private firms, including start-ups, to seek equity investments without registering shares for sale, though only from accredited investors. But if implemented, other provisions of the law would allow entrepreneurs and others to use crowd sourcing or social media to troll for money from virtually any would-be private investor. And that’s not such a good thing.
Brazil has been generating a significant amount of buzz in the venture capital and startup community recently, fueled in part by media coverage of several high profile firms “planting their flags” in the country with dedicated funds or investments. A growing awareness of the burgeoning Brazilian startup scene, and Brazil’s role as host in the upcoming World Cup and Olympics, has further elevated the country’s profile. Read More »