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
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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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Todd Crosland Develops Seed Equity Capital Fund

June 16, 2015 by

Todd Crosland Seed Equity CapitalOn May 5th Todd Crosland, the CEO of Seed Equity Ventures, launched a new venture seed fund under Seed Equity Capital Partners, LLC targeting $10 million. This fund was developed to invest in early stage technology startups and will benefit from the vetting, sourcing and due diligence process that is performed by the Seed Equity investment team. The fund is permitted to engage in public fundraising endeavors, since it was filed with the SEC under Rule 506(c). The fund has already produced three investments, including a startup that came out of Techstars London in the UK, Spatch, Inc.

The investment opportunities will likely be sourced through Seed Equity Ventures, an affiliate of Seed Equity Capital Partners. Todd founded Seed Equity Capital Partners as a natural extension of Seed Equity Ventures. The fund creates another outlet for startup companies to obtain investment exposure. Seed Equity Ventures’ platform is an online resource for startup entrepreneurs to connect with investors from around the world, and the fund created by Crosland is another funding outlet that is directly connected through the website.

Investors also benefit as investments from the Seed Equity Capital Partners’ fund allows them to diversify their portfolio across the platform. The fund’s investment criteria is as follows:

  1.  Tech companies with unique business models that are potentially disruptive
  2. Early growth in either user base or revenue
  3. Experienced management with past success

The priority is in the disruptive nature of the company in the technology industry. Seed Equity is looking for companies with a product that has the potential to disrupt the technology industry. The fund looks to work directly with company management to gear them for success.

Seed Equity Ventures was developed as an online investment-networking platform where startup companies could connect with investors from all over the world. Startup companies are popping up all over the place, so it is important for capital to be accessible for those with potentially innovative market solutions. The Seed Equity Capital fund was developed to accelerate this, and create an online environment that democratizes investing for startup companies.

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Pebble Makes Crowdfunding History on Kickstarter

March 6, 2015 by

Todd Crosland JOBS ActPebble’s record breaking $16,500,000 (and counting) fundraising campaign on Kickstarter gives a glimpse of the potential for Equity Crowdfunding.   

Title III of the Jumpstart Our Business Startups Act is potentially nearing the finish line by the end of 2015. It is estimated that final rules could be issued as early as October, 2015. These proposed rules will generate a new class of investors to allow non-accredited investors to invest in equity crowdfunding. Title III will democratize the investing landscape, as everyday Americans, with risk capital, will now be able to invest in private, primarily startup companies.

This adds another element in entrepreneurship. Gaining fans, followers, and future investors on crowdfunding websites will soon become a new wave of business development that will be essential for new companies to maintain and expand growth.

Before Title III, investing was only for wealthy accredited investors, and now the landscape is heading towards benefiting anyone with the Internet available risk capital. Technology is creating an environment of easy accessibility for all, and businesses are most definitely included. The road is being paved for equity crowdfunding, as we expect to see big leaps in the industry in 2015.

Seed Equity Ventures, is one broker that is planning on expanding its investor base beyond accredited investors to include the new wave of equity crowdfunding investors. Seed Equity, a registered broker dealer with the U.S. Securities and Exchange Commission and is a member of FINRA/SIPC, and provides investment banking services to early and growth stage technology companies. Equity crowdfunding is expected to take big leaps in the industry as they prepare for the installation of Title III of the JOBS act. Moving forward, the equity crowdfunding community expects to see significant attrition as the importance of becoming a regulated entity with the Financial Industry Regulatory Authority (FINRA) as a self-regulatory organization (SRO) increases tremendously. Many funding portals are expected to abandon Title III strategies, as they will not have the capital to wait around for SEC and FINRA approval. We also expect funding portals to partner with broker dealers to act as an additional revenue stream.

JOBS act Title III aims to change the venture capital industry from an industry of a couple thousand wealthy investors to billions of people from around the world. With these regulations nearing final approval, the voice of what becomes popular belongs to everyday people from all over the world.

What company will be the future equity crowdfunding success like the Pebble smartwatch? Whoever it is, the masses will have an opinion and a stake in that venture.

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Venture Capitalist’s Predictions for 2015

February 6, 2015 by

Todd-Crosland-venture-capital-trends-2015Venture Capitalist, Sergio Monsalve, predicts 5 trends that will create a large stir in 2015. As companies continue their fast-paced scaling and innovation, below 5 industry trends that Sergio expects to see develop further in 2015.

1)   Watch out for software!  – 2014 saw a lot of mergers and acquisitions for hardware, but Sergio expects that to shift more into software based ventures.   He also predicts that the hardware Internet of things will become more of a commodity. We can already see this in the smart watch industry as FitBit and Apple are becoming more focused on commoditized offerings.

2)   Online education will make major strides – Online education is expected to reach $107 billion by the end of 2015, which represents an increase of 200% in three years. Stanford’s Graduate School of Business is leading the way by announcing their online school for company executives.

3)   A new generation of marketplace will emerge – Emerging marketplaces like Udemy and Minted have the potential to take over last generation’s marketplaces of eBay and Craigslist. Major online marketplaces will continue to make a major dent in the economy and grow at a faster rate, with the potential to surpass Apple and Alibaba.

4)   The NASDAQ will flatline – Multiple people are talking about a bubble that is forming, but Sergio believes that the NASDAQ will stay relatively flat and might even decline a bit. Sergio does believe that there will be quite a bit of volatility in 2015. The IPO standards will be greater to let a little air out of the potential asset bubble.

5)   Indian Startups – 2015 will be a strong year for the digital economy in India. India recently had an election that people are feeling confident about. This paired with their growing technology sector will certainly take advantage of the global digital economy. Venture Capital has increased tremendously in India as venture capitalists are looking globally to find the next big digital market.

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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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