Venture Capital Firm and Crowdfunding Platform Come Together To Transform Startup Financing

May 4, 2016 by

Utah-Business-Sept-2008-todd-Crosland---IBFX-Fastest-Growing-Company-compressorVenture capital and crowdfunding are typically thought of as an unlikely match. Crowdfunding is largely driven by the concept of democratization of finance, in which the power is placed into the hands of the people. This ideology is the polar opposite of venture capital, a sector in which many professionals would likely consider crowdfunding to be based on grandiose and utopian concepts.

But surprisingly enough, the two have come together in a new and revolutionary initiative. Collaborative Fund, a New York City-based venture capital firm and an early investor in Lyft, Kickstarter, and Reddit, will be partnering with a San Francisco-based equity crowdfunding company called CircleUp.

Collaborative Fund will receive access to the approximately 200 startups on CircleUp, which it analyzes using proprietary algorithmic technology. About 92,000 data points per company are compiled and analyzed by CircleUp. These data points include financials, brand, leadership, customer engagement, and deal and exit potential.

Craig Shapiro, the founder and managing partner of Collaborative Fund, stated that he would never be able to be as efficient as he is if he didn’t have the technology of CircleUp. When CircleUp features startups on its platform, it gets a number of investors with deep pockets putting money behind these startups.  This increases exposure for consumer-product startups.

The venture capitalists play an important role in getting investors. If investors see that a professional venture capitalist has shown interest, they are more likely to invest in a startup. The more money that is invested in startups on CircleUp, the more money the fundraising platform earns. This is because CircleUp earns 5 percent commission on average. This adds up considering that Circle Up has helped over 160 companies raise more than $180 million.

This partnership is likely a bit of foreshadowing for innovations to come in the future. This may be a new chapter for the methods by which startups gain access to money, and the way that investors find startups that are seeking capital. This process is likely to make private financing accessible to a larger group of people.

CircleUp does not use the term “equity crowdfunding” to describe their business. Instead, they market themselves as a pioneer company for “marketplace investing”. The reason for this is that “crowdfunding”, to many people, implies the size of the investments being made. The average investment on CircleUp is currently higher than $100,000, a giant step up from the $15,000 on average that was being invested four years ago when CircleUp began. The term “marketplace investing” shows that the Internet has made it easier than ever before for investors find companies seeking investment.

The relationship between crowdfunding and venture capital is mutually beneficial. Crowdfunding, or marketplace investing, brings investors and entrepreneurs together. Venture capital firms bring greater amounts of money, as well as mentorship in guiding and advising startups.

While this is a harbinger for the future, not all venture capital firms will partner with crowdfunding platforms. Some venture firms will resist change while other will adapt. Nonetheless, this  type of partnership is showing a lot of promise. Collaborative Fund’s partnership with CircleUp is proof that in the future we may be able to eliminate the disconnect between the venture capital and crowdfunding industries.

 

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Three Key Trends In Venture Capital To Look Out For In 2016

April 15, 2016 by
Utah-Business-Sept-2008-todd-Crosland---IBFX-Fastest-Growing-Company-compressor

When we talk about growing businesses, we also talk about venture capital. Whether you’re raising money for your own startup or looking for options in which to invest, there are a number of venture capital trends coming up in 2016 that are worth recognizing. We are currently in the seventh year of the US equity surge, making this the longest surge since the World War II era. For this reason, we can expect some new methodologies to come about for those partaking in venture capital. Here are a few trends that we can expect to see in the landscape of venture capital in 2016.

1) An increase in the number of corporate deals

A number of corporations are investing in smaller companies in order to gain inspiration for their own innovation processes. By investing in small companies, these corporations are not only getting rewarded in terms of financial returns. They are also generating stronger suppliers, testing products for their own use, reducing the risk of innovation, and creating acquisitions that are less expensive.

In 2015, one out of five deals in the United States and Europe involved corporate venture. In Asia, corporate venture participated in one out of three deals. In 2016, founders will be continuing to study the various ways to attract and engage investors with deep pockets. This results in great competition, leading traditional financial VCs to have to work harder to stand out to entrepreneurs.

2) An increase in the investor appreciation that small funds earn

Due to the growing corporate presence within the largest deals and record startup valuations, the opportunity for big returns has somewhat decreased. The change will help to alter the world of venture capital in 2016. Before 2000, the largest ten funds received the majority of the returns, but in this is no longer the case.

In today’s venture environment, smaller funds are gaining some of the highest returns. According to a report from Cambridge Associates, the idea that most venture industry performance is generated by the top 10 firms is an unsupported and unfounded claim. If investors believe this myth, they can miss out on valuable opportunities.

3) An increase of gender and racial diversity among investors and entrepreneurs

Increased attention has been driven to the level of diversity on each investment team, and how it affects returns. Companies that are lacking female talent, for example, are suffering. As a result, the Information and Social Capital has put out The Future List, a compilation of statistics gathered from 6,000 data points on 552 senior investment professionals from 71 firms. This data used diversity to determine which investors are best prepared to benefit from future trends.

It has also been proven that gender diversity on founding teams is largely associated with top performance. Studies show that teams with female founders outperform exclusively male teams financially by 63%. There is also likely to be an increase in racial diversity among entrepreneurs. 41% of new entrepreneurs in 2015 were non-white. It is expected that in 2016, the majority of entrepreneurs seeking investments will be either non-white, female or both.

This year will be an exciting one for venture capital. We can use trends in the past to predict what will occur, but only time will tell how the landscape of venture capital will change. If you are looking to gain investors for your growing business, or even if you are looking to invest, make sure to keep these trends in mind so that you can stay informed and get a leg up on the competition.

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Investments in the New Year

February 16, 2016 by
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Since the end of 2015, a year in which the technological sector reached new heights and venture capital flourished, there has been some trepidation surrounding venture capital’s future. Last year, entrepreneurs churned out a surprising number of unicorn companies, which spurred investors to put more stake in startup companies. The companies did not disappoint – they created new online lending platforms, all sorts of wearable technology, and even online education became a more profitable and popular platform. 2016 has not been so fortuitous, as investors are taking a step back and asking ‘what next?’

The focal point of this year’s investing will be in late stage investors, as venture capital investments have had a tumultuous start in the first month of this new year. This particular crop of investors will most likely put their money toward startups that have already somewhat established themselves. The technological sector is still growing, and it makes sense that investors will want to further shape this field rather than put their money in something completely new. It is a safer bet.

It is also safe to say that unicorn companies will be in shorter supply in 2016. Investors have shown that they are not willing to take such financial risks anymore, and will focus their finances on companies with more realistic business models. Also, there will be a focus on the unicorns of 2015, and, as is already beginning to show, their increasing financial needs. Investors have found themselves forced to invest more money to keep the unicorns afloat, which is another reason they have become wary of putting their money in any new ‘unicorn’ type companies.

The IPO market is also looking quite dismal, and, although it may not bounce back, it will not necessarily become worse. Companies in the technological sphere who have a good grasp on their finances will be drivers in this market. This means that startups with already-existing business models that have been proven to be successful will obtain the most venture capital investments.

Education Technology is a sector that does not look like its value will decrease anytime soon. It is especially relevant because education is a hot topic in ongoing presidential debates. I predict that venture capitalists will flock toward companies that emerge to create educative technology, including virtual reality devices.

Overall, the beginning of this year has been disheartening for companies and venture capitalists alike. While venture capital investments may not take off again this year like they did in the last, there is a good chance that venture capital investments will bounce back in fields that are already established as the year progresses.

For further reading on this subject, read CNBC’s article about Venture Capital in 2016.

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Venture Capital in Trouble?

January 15, 2016 by

It is nearly impossible to accurately predict what will happen to the venture capital industry in the future. Many startup companies rely on venture capital to launch, so what happens when the venture capital industry becomes even more selective?

Prompting these questions are analysts who have been announcing that the venture capital investment cycle was recently at a peak, and the only way it can go is down. This is based on data about venture capital funding from the end of 2015 being compared to that of 2014. The numbers show, for example, that the amount of money give to startups before launch dropped by almost 30 billion dollars in 2015.

However, this does not mean that investors are getting stingy. Rather, in 2015, investors gave 3 billion dollars more to venture capital funding than they did in the year 2014. Still, the number of venture capital firm exits is way down from where it was in 2014, and major public stock markets have not been flowing in any dramatically positive directions.

Surprisingly, the technology sector, a leader in the venture capital world, is also suffering. Revenue in this sector fell in 2015 and sales rose only a little above 3%. This number is not something many people would take note of, much less look at in a positive light.

Furthermore, interest rates have risen, which makes investors less willing to many risky investments. The Initial Public Offering (or IPO) market is also down on its luck. There was an almost 60 billion dollar drop in the value of deals in the economy in 2015. Startups that have traded at a lower than expected value run rampant in the market, even ones that were predicted to trade at high values.

So, what does this all mean? Is venture capital as we know it officially defunct?

Many believe it is. Some experts think that there was an initial ‘honeymoon’ period for startups in which companies were valued at a level that they could not maintain and, now, we know better. Others think it is too early to call any period in venture capital funding a ‘peak.’ The industry is so new that this lull could just be a bump in the road.

Either way, a decrease in venture capital funding is not the calamity that it once was for startups. Many startup companies have gotten more creative in their funding methods, and are therefore able to function with very little or no venture capital funding at all.

As for where the venture capital industry will go in 2016, we will just have to wait and see.

For more information on the venture capital lull, check out this article on Newsfactor.

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Venture Capital Expands Music Company

December 10, 2015 by

Reverb Holdings, Inc. is an online marketplace for musicians. On this website, musicians have the ability to buy and sell their gear and instruments. The company was begun by David Kalt, who co-founded OptionsXpress Holdings Inc. before he became interested in selling musical instruments. In the year 2012, he launched reverb.com.

Kalt initially put his own money into the company; he did not want to ask for crowdfunding support straightaway. He began the company simply as a way to help musicians find used equipment that was less expensive than it was on Ebay. He owns the Lakeview Guitar Shop Chicago Music exchange, so he has had to learn a lot about a musician’s struggle when it comes to purchasing instruments.

When Kalt decided he wanted backing for reverb.com, he was not expecting a large sum of money. He reached out to a few friends that he knew from his time in the music business and from college. He ended up being funded 2.3 million dollars. His initial investors included Rick Nielsen, from the band Cheap Trick, and Brad Keywell and Eric Lefkofsky of Lightbank. The website grew to have over 50,000 users of both buyers and sellers, many of whom are musicians that respect the instruments and the process.

Fast forward to present day, in which reverb.com has raised over 25 million dollars in venture capital funding, a fund that was led by Summit Partners. This money is all being funneled into the Reverb online marketplace. The company has grown significantly since it first appeared online, and has even launched a new online program called Reverb Lessons in which music instructors can find students online, and vice versa.

It is a constant conundrum how any e-commerce platform, no matter the niche, can withstand competition against e-commerce websites such as Ebay or Craigslist. After all, these e-commerce platforms sell any number of things and are constantly expanding. However, Kalt is doing something smart to distinguish reverb.com from these other websites. Instead of just listing the instruments online, he makes sellers list an instrument’s history, post up video demonstrations, and he also includes an instrument pricing guide. Kalt makes sure not to hide anything from the buyers on his website, and I think that is why he is coming out on top.

Venture capital has done a lot to expand this musical e-commerce website, and it will be interesting to see what Kalt thinks of next.

To read more about how reverb.com has expanded, check out this article in the Wall Street Journal.

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Venture Capital Expands in Europe

November 24, 2015 by

Google venture capital in EuropeIt has been a long time since the startup industry in Europe expanded. Emerging European companies have not been paid any attention due to their slow scaling, and their home country’s stagnant economy. However, this has all changed. There’s been a large influx of investments in European startups throughout the past year as the world began to recognize the desire to scale to a global level by new European companies. Additionally, venture capital in Europe is far less expensive than it is in the United States and Asia, giving investment companies access to new talent for a fraction of their regular cost.

Corporations that have started to shift their focus over to Europe include Salesforce.com and Google. Governments all over Europe are promoting entrepreneurial ventures, and new companies need the capital. For example, Microsoft has not only expanded its venture capital program in Germany, it is also partnering with existing German companies. Google Ventures has infiltrated Europe and the Netherlands as an investor. Both are making money.

These investing corporations are really changing the culture of innovation in Europe. Venture capital declined initially because startups in Europe were known to be stagnant. They did not grow quickly enough and were not aspiring to scale to a global level, being content with scaling only to a regional level, and therefore made money slowly. Only recently, when California firms decided they wanted to expand the scope of their investments, did venture capital firms recognize the potential in young European companies. Google Ventures may have begun this trend when it announced it was opening a venture capital firm in London. They referenced popular companies that had already emerged from Europe, such as SoundCloud, to justify their decision.

Since this is such a new development in the venture capital world, it is difficult to discern the origin and the effects of the European venture capital movement. There exists no clear rationale as to why large companies began investing in European startups, although the why is not as important as what these investments could bring. There is a lot of potential in young European companies, and pouring money into these technology-based businesses could significantly boost Europe’s economy and showcase European technology talent. However, the implications that the venture capital expansion has for the rest of the world are still unknown. The low cost of venture capital in Europe makes it an attractive focus for all venture capital firms, and we will have to see if this has repercussions for startup funding in other, more expensive, parts of the world.

That being said, it is great to see venture capital blooming in Europe. This is an exciting time for venture capital firms and European startups alike, and it will be interesting to see where these blossoming young companies take the tech industry next.

To read more about the venture capital expansion in Europe, check out the Seattle Times.

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The Symbiotic Relationship Between Venture Capital and Crowdfunding

December 30, 2014 by

Todd Crosland venture capitalIf you’ve followed the exciting life of Kickstarter projects like the Pebble E-Paper Smartwatch or the Coolest Cooler, you might think traditional financing is a thing of the past. After all, these projects both raised more than $10 million through Kickstarter’s crowdfunding model with the help of thousands of backers.

Wildly successful campaigns like these are the exception on Kickstarter, where most projects only just reach their modest monetary goal or get completely ignored and buried in the process. Rather than making venture capital irrelevant, this survival-of-the-fittest trend in the crowdfunding model has actually provided a way for venture capitalists to test the potential viability of a product before going all in.

Crowdfunding can be useful even when a company is particularly well-funded. Where else can you find an audience so excited to get the latest and best gadgets that they are happy to help fund your product’s development? Where else can you actually pitch your product idea to your intended audience rather than a CEO of a large corporation?

The symbiotic relationship is not just about safeguarding a venture capitalist’s wallet. It can also help investors find the right kinds of products to fund. According to CB Insights, about 10% of all crowdfunded projects that pass the $100,000 mark get formal venture capital funding after the campaign’s end. And as of mid-2014, more than $300 million has already been committed to these companies, with lots more projected by year’s end.

Products that cannot be explained through a 5 minute Kickstarter video will likely remain solely in the world of venture capitalist funding, at least for now. But for those products that can benefit from both venture capitalists and crowdfunding models, crowdfunding will continue to be a solid source of validation for investors looking to write a check.

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The Importance of Venture Capital in Utah

October 14, 2014 by

Todd Crosland Venture Capital Salt Lake CityA recent article on Beehive Startups discussed the venture capital scene in Utah as one of their writers attended the Utah Technology Through Time Conference. The conference was held in Salt Lake City as one of the main focal points of discussion was Utah’s startup environment.
One of the first topics discussed was the venture capital support for Utah’s booming tech startup industry. The conference brought together notable venture capitalists whose presence has been felt in Utah. The panel consisted of Ralph Yarro, founder of Think Atomic; Chris Cooper, partner at Pelion Venture Partners; Dr. Dinesh Patel, founder of Signal Peak Ventures; and Sid Green, founder of TerraTek and former Entrepreneur of the Year for the state of Utah.
The panel discussed Utah’s new investment high and posed the question, “how crucial is Venture Capital to Utah’s budding startup scene?” Recently the private research software company, Qualtrics, had a series B investment round of $150 million. The Provo-based company’s record-breaking investment round brought Utah’s overall investment to a record high. The panel went on to discuss the importance of funding needed to keep up with the innovation taking place in Utah.
Ralph Yarro pointed out Ray Noorda, along with a couple other investors who acted as “sugar daddies” and paved the way for Utah’s startup scene and attracted more venture capitalists. Also, state funded injections to the tech startup scene, such as the Small Business Innovation Research and Utah’s Technology Finance Corporation, made Utah a more attractive place for venture capitalists. These injections along with Utah’s high-profile investors brought Utah from the fringe of IT into a more central role that developed throughout the years.
Two more interesting observations were said about Utah’s developing startup scene. One of Utah’s biggest tech disadvantages was their lack of C-Level executives. It was difficult to convince big business heads to come to Salt Lake City and live in Utah. This is not the case anymore as Salt Lake City is becoming more attractive and bringing in more C-Level executives. Another aspect that was brought up by Dinesh Patel was that many entrepreneurs in Utah are content with quitting after selling a company for $5 to $10 million, whereas in Silicon Valley, entrepreneurs will sell their company and move on to their next venture.

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Binary Capital out to Revamp the Venture Capital Industry

August 10, 2014 by

Todd Crosland Binary CapitalA recent article in the New York Times talks about a new venture capital firm that is focusing less on metrics and more on a company’s mission. Born in Singapore, Jonathan Teo graduated from Stanford University with a master’s degree in electrical engineering. He worked his way up at Google to become an engineer manager at the young age of 27. He was part of the Benchmark Capital team and had an integral part in their investments in Twitter and Instagram.

Now at the age of 34, Jonathan teamed up with his friend Justin Caldbeck to form Binary Capital. On the 17th of July, Binary Capital raised $125 million dollars in hard capital in just three months. While most venture capital firms look at a companies metrics and scale the companies future financial relevance, Binary Capital’s goal is to invest in 15 to 20 early stage startup tech companies that have the potential for global impact.

Binary Capital also plans on giving a portion of their earnings to charitable organizations that are chosen by their entrepreneurs. They eventually want to use the technology that they invest in to team up with global nonprofits in the developing world. The entrepreneurs that Binary Capital plans on partnering with not only have a vision of commercial success, but they are also focused on improving the lives of less fortunate people.

Jonathan and Justin will be taking a different approach to most venture capital firms. They want to find the elusive entrepreneurs out there that are not already in play. Entrepreneurs that venture capital firms have to pitch to are some of the best deals made because they truly have a vision for their company.

Justin Caldbeck and Jonathan Teo are known for their gritty, smart, hardworking efforts. Binary Capital is a venture capital firm to watch out for as they try and revamp the venture capital industry.

You can read more about Binary Capital in their very own New York Times article here.

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