Disruption Hits Early-Stage Venture Capital
Venture capitalists specialize in backing companies that are looking to change and innovate a specific market, so it’s a bit meta that their industry is now the one being disrupted. New funding sources, such as AngelList and WeFunder, have been popping up over recent years, offering entrepreneurs different options when looking to raise capital. And although these services haven’t yet been around for all that long, their presence has been felt and by all measure they seem to be a force to be reckoned with.
AngelList is one of the players leading the way. The company offers a platform for startups and angel investors to create profiles, connect with each other and complete investment rounds. AngelList’s recently released 2015 year in review shows its site facilitated a total of $163 million in funding for 441 startups from 3,379 investors. And although that amount may seem paltry when compared to the sum of venture capital raised in 2015, it’s notable that all those figures increased by sizeable amounts since 2014, proving that the platform is both alive and growing. For comparison, in 2014 the platform saw $104 million disbursed by 2,673 investors to 243 startups.
A large driving factor of this growth was the launch of AngelList syndicates, which enable angel investors to pool money and back other notable angels, who then invest that pool into their deal flow. Not only does that give angel investors access to deals that they may not have been able to be a part of, it also empowers well connected investors to leverage their network to gain returns. This feature has gained popularity in a relatively short amount of time, seeing some of the who’s who in tech investing heading their own syndicates (Jason Calacanis and Semil Shah, to name a couple). AngelList reports there are now 170 active syndicates on the site. It may be tempting to brush these groups of angels aside as they’re lower-tier investors, but that would be a mistake. Some of the largest firms in the industry, such as Sequoia Capital and Accel, have co-invested with syndicates on a deal.
Equity crowdfunding services—sites that allow everyday people to pool their money to invest in startups, as opposed to only accredited investors—have also taken off as of late, thanks to the passing of Title III of the Jumpstart Our Business Startups (JOBS) Act. WeFunder, Seedr, CircleUp and Fundable are just a handful of the names leading the charge in this section of early-stage investment. While still in the beginning phases of development, these sites have garnered a sizeable amount of attention, and for good reason; they have increased both the amount of capital available to founders and the number of sources for that capital.
Change is inevitable and it’s always one’s choice whether to embrace it or resist it. While some may argue that these new funding sources are shifting the early-stage VC industry for the worse, it seems as they are more filling in a gap that has existed for some time. The increased amount of deal activity is testament to the value they are adding both to startups and to VCs alike. It will be interesting to see how the VC industry copes with the rise of these alternative funding sources. One thing is evident, these sites are here to stay and will most likely play an increasing role in early-stage startup investment.
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