Is Crowdfunding disruptive? If you take the word disruptive to mean disturbing or upsetting what is currently in the funding ecosystem – my quick answer is to say no. I think there are very complementary aspects to Crowdfunding in the capital raising ecosystem. In my opinion, it is just another arrow in the entrepreneur’s quiver in the search for capital to fuel their companies.
For example, reward based Crowdfunding might be more logical for a company to pursue at a certain point than a traditional round with Angel investors. Alternatively equity based Crowdfunding might be a good stepping stone in whetting an entrepreneur’s experience with giving up shares in his or he company and priming the pump before proceeding with Angel or VC rounds.
But I do not see equity based Crowdfunding as the be all and end all for raising money for entrepreneurs. Absolutely not!
Now if you look at the other side of the coin (pardon the pun), Crowdfunding allows investors to see more deal flow as the Internet has no boundaries. However, the traditional Angel investor tends to want to be closer to their investment in terms of geography to provide “smart money” advisory support. Will this “smart money” support disappear – maybe? Yet, with technology innovations, such video conferencing, could very well support mentoring at a distance.
I also see that the many existing and new equity based Crowdfunding platforms will allow investors to quickly vet what is aligned to their risk and interest profiles. It creates an “always on” financial marketplace for them.
So what main trend do I see – it seems the approach to raising equity capital through Crowdfunding is currently so focused on the paper exercise to ensure regulatory compliance. And this seems to be the main focus of equity Crowdfunding these days particularly in Canada and the United States.
Reviewing the companies that have received significant sums of capital from equity Crowdfunding in the UK, for example, there appears to be one discerning trait about these companies and that is they can demonstrate they are not just preparing campaigns or compliance documents … they are demonstrating they are building investment value. A business that is attractive to investors.
So what will be important for entrepreneurs wishing to get involved in equity based Crowdfunding is that they have to ask this one basic question at the very beginning of any capital raise journey.
Is my company fundable?
To help answer this question, there will be a trend toward a deeper education of entrepreneurs in the “art of the start” or the art of building a company that is fundable. We will see a shift from current day bricks and mortar incubators, accelerators, advisory support to more digitally based delivery mechanisms to help entrepreneurs engaged in Crowdfunding to build better businesses.
So to summarize it basically boils down to doing the things necessary to get capital and what I call creating “investment curb appeal”. It goes well beyond just having a business plan in hand, all the regulatory documents prepared and a landing page on an equity Crowdfunding site.
It boils down to the fact that the entrepreneur must demonstrate in every way that he or she is building a sustainable business and advisory support from all corners will be necessary to help them to do this.