No one will be talking about crowdfunding in a few years time. The term itself has become too broad to be meaningful. The missions of the leading players are widely misunderstood, even by their own investors. It’s the equity crowdfunding that is dead soon. Not because individual investors won’t continue to invest, but because equity crowdfunding is a confusing and misleading term. And it has some built-in problems.
What does it all mean for your company? The good news is that equity crowdfunding has transformed into something not less sensational than Kafka’s gigantic insect – into the online investment banking for start-ups on the one hand, and a “beauty contest” of potentially new portfolio companies displayed on the investors on the other.
So what’s the problem? Aren’t the equity crowdfunding platform companies growing super fast?
Let’s list few of the issues…
- There have been practically no exits among crowdfunding companies. From the investors’ point of view it’s all about exits and profits, not the investing itself.
- Waiting 10+ years to see which investments made profit, if any, is simply too long time for the intended audience of crowdfunding. What works for the Limited Partners in the VC Funds does not work even for the wealthy “Doctors and Lawyers” category, not to talk about the rest of us.
- While waiting for your 10 years, the likelihood of getting into trouble with your investment is high.
- Legal documents are always different for each company, long and complex. Trying to avoid the problems of the previous point means you should master this but there is really no chance.
- Valuations can be sky high and it’s not good for anybody. It also means if you’ll get an exit later, it might be at loss. And you only know after 10+ years.
- Crowdfunding seems to be always the “last option” for great startups if no other funding mechanism works. There are really few “A Class” companies looking money via crowdfunding.
- Smart investors create balanced and diversified portfolios. Easy and planned diversification via crowdfunding is impossible. It would make sense to diversify one’s investments into at least 20 different companies varying in business segment and geography.
However, there will be new generation of funding services for the startups and private investors.
Equity crowdfunding is dead. But, at the same time, I have never been more optimistic about the potential for crowdfunding services to create value for entrepreneurs all across Europe, to bring profit opportunities for the private investors as well as streamline deal-flow sourcing for investors. The new generation of funding marketplaces will see greater adoption from individual investors and institutional investors alike – which will only benefit entrepreneurs.
What if there would be an online funding mechanism to…
- Enable A class startups to get seed funding they need to grow to the next level?
- Help VC’s to improve the efficiency of their deal-flow?
- Make it possible for private investors to make reasonable profits in an understandable time frame?
Got interested? Time to get in touch.