Tech companies are of particular interest to accredited angel investors who tap into investment crowdfunding platforms like AngelList, Crowdfunder, Gust and MicroVentures.
While most people are familiar with Kickstarter and Indiegogo, campaigns on those sites include everything from singers pushing records to companies developing new projects. In lieu of equity, backers get the eventual product and other rewards. But portals that cater to accredited investors generally take a more sophisticated approach – they’re about pairing investors with companies who’ll trade equity for cash.
The number of fundraising portals of all stripes is certainly on the increase. Although hard numbers are difficult to come by, given the mix of data for donation and equity-based crowdfunding, a number of experts say startups should start paying attention to the investor-focused services. Victoria Yampolsky — startup advisor, financier and chief strategy officer and CFO at digital development studio Mobilosophy – says tech firms need to think of equity funding portals as a viable way to look for much “more modest investment than the VC community might provide.”
For new companies, these portals offer another way to access early stage seed funding. As with any investment, there’s always a risk that they won’t meet their funding goal or the investor won’t see a return. But, Yampolsky points out, besides bringing in money, an online equity campaign can sometimes raise the profile of a company that ultimately aims to tap into the VC world.
At least for now, tech firms appear to the darlings of investment portals. For example, a big chunk of the investment dollars flowing through the equity portal Gust is focused on technology companies, says CEO David S. Rose. Launched in September 2011, Gust has generated over $1.7 billion in direct investments into early stage companies. Approximately 45 percent of those dollars were invested in core technology companies — Internet, biotech, clean tech, computer peripherals and electronics, software, mobile and IT. In 2013 so far, tech companies submitted 41 percent of the funding applications in Gust’s system, and represented 55 percent of all the deals closed, says Rose.
Rose sees online platforms as existing side-by-side with other funding vehicles and not as competition to the VC world. His company isn’t a registered broker-dealer, and it doesn’t curate deals or invest its own funds.
Tim Sullivan, CEO of the funding portal MicroVentures, agrees, adding that these sites are filling a much-needed void in early stage financing. “Traditional VC’s have moved toward larger investments and in companies with more traction than [they have] historically,” he observes. MicroVentures, which is a registered broker-dealer, raised $20 million in capital for about 45 entities since its first effort in June 2011. Sullivan says the funds raised were almost exclusively for tech companies.
The Road Ahead
While an online vehicle for angel investors might sound like a wonderful, quick and easy way to link accredited investors and tech companies, it can still take nine to 12 months to close a funding round. Plus, tech entrepreneurs hoping to find seed capital for their startups may still need to work much harder to get funding this year, whatever channel they pursue. During 2013’s first nine months, angel investments fell below last year’s levels, according to TechCrunch’s CrunchBase, and there are fears that the remainder of the year will continue to disappoint.
Gust CEO Rose, however, contends that the figures are much more promising than some might say. “Most other reports available base their data on extrapolations from self-reported surveys typically executed with a limited sample,” he says. Yampolsky also believes that whatever the current environment might be, it’s still easy to get funding if you have a very good idea.
Remember, though, as with any other investment, the dollars raised through portals come with strings, and the more diverse set of investors you have, the better. Says Rose: “Investors differ quite a bit in their preferences and opinions, and you should not depend on one or two people to ‘bless’ your company. The investor world is broad and diverse in its curation methods.”