Press Room

1/20/2015

EquityNet Featured in Entrepreneur

Below is an article by Entrepreneur entitled “Why Venture Capitalists Are Turning to Crowdfunding"

Why Venture Capitalists Are Turning to Crowdfunding
By: Judd Hollas, Entrepreneur Contributor
Jan 20, 2015

The crowdfunding industry has been making great strides in helping entrepreneurs from all industry sectors solve the ever-present problem of undercapitalization. And forward-thinking venture capitalists have begun to take notice.

Given the fact that more startups and small businesses are launching crowdfunding campaigns, it’s no wonder that many venture capital firms are turning to crowdfunding platforms to access new deal flow. New proposals are the life blood of  venture capitalists or funding firms.  

Traditionally, deal flow for venture capitalists came from referral networks or various website submissions. Crowdfunding platforms give venture capitalists additional deal flow volume and provide them with efficient mechanisms to review it, quickly communicate with entrepreneurs and make the investment decision-making process streamlined. 

Venture capitalists use crowdfunding to easily determine if a deal is worth spending time on. Given the time constraints on their schedules, many venture capitalists agree that using a tool like crowdfunding is valuable and keeps them from wasting time chasing bad deals.

Venture capitalists receive dozens of business plans every day, often in various formats and some are lacking in essential data. Crowdfunding platforms inherently leverage technology to categorize multiple aspects of the companies seeking capital and present them in a standardized format that can be quickly reviewed by any potential investor.

This allows for a much quicker due-diligence process than traditional means. The crowdfunding platforms' standardized format, that requires several data points from entrepreneurs, provides venture capitalists and other investors with vital information that enables them to make an investment decision. 

Crowdfunding platforms help entrepreneurs understand how to prepare and present their proposals in a manner that venture capitalists, angel investors and others prefer. The standardization of these proposals and business plans save venture capitalists' time as they don't have to search for specific information that could be in various locations in nonstandardized proposals. 

And crowdfunding platforms have exponentially increased productivity, not only for the due diligence process. They serve to help increase the velocity of information and communications shared, negotiations and funding. Sites like AngelList, Fundable, Crowdfunder and my company's site, EquityNet, all leverage technology in an attempt to streamline the funding process. 

“Crowdfunding is also compelling to VCs because it requires entrepreneurs to demonstrate the strength of their team and the value of their concept in the marketplace itself," says Ron Miller, CEO of StartEngine.   

"This means that strong teams and strong concepts can be brought to market and receive exposure to a number of venture capital firms and other investors seeking to invest in their business,” Miller adds.

In addition, another appealing characteristic of crowdfunding platforms is the fact that there are tens of thousands of investors using them. These investors are the crowd and many platforms have devised ways for them to communicate with one another and provide fellow investors assistance in performing due diligence.