Time To Build Without VCs

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Corona has kicked down the Western world in less than three weeks. Markets slumped deepest, fastest in history, while the U.S. chart unemployment claims turned vertical. Corona has shown America the fragility of their system in fast-forward. Unlike here in Europe, in the U.S. the economy is more flexible, nimble, but when things turn bad, everything just falls apart like a house of cards. For one thing, it is much easier to lay off people in the U.S,; and as we know, the U.S. healthcare system is the dearest in the world, so a pandemic which requires treatment of people en mass is not exactly what it was built for.

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Q1 2020 hedge fund letters, conferences and more

America's Bluff

Every time something this profound happens, thinkers, authors, economists and many other celebrities come together, prophesying how things will change. Marc Andreessen is one of the most well-known investors in the world. He loves making headlines. His latest essay It’s Time To Build reads like a manifesto of a youth political club, but it sure struck a chord with a lot of Westerners. He calls out the America’s bluff - its unpreparedness for the virus outbreak. In the time of crisis, they don’t have things to fall back on - the ventilators, tests, ICUs -  because instead of building things, they offshore all the hard stuff, living comfortable light lives.

For Andreessen, the issue isn’t money, it’s America’s “smug complacency.” After all, the U.S. government just promised to push $2 trillion into the economy, right? Andreessen talks about gleaming skyscrapers, highly automated factories and hyperloop(s), and asks why there is no will to build these things? But who is going to pay for them? It’s not likely to be private capital institutions like his very own fund, a16z.

The Rise Of Private Funds

What not many people talk about is that after the last crisis in 2008, private funds began building the cottage industry of app-economies and the millionth startup we are stuck in now. They had to. Private funds like venture capital have one mandate - to make big bets on crazy business ideas with the odd chance to become the next Facebook(s). For over a decade now, the money of wealthy people and American pensioners kept chasing the Uber(s) of this world, instead of building the hard stuff that we all need long-term. Bread and circuses to the people; this time in the form of superficial profit-maximizing app economy.

So where does the money come from? Certainly not from governments, they have failed people already and they feel it. Throughout the U.S. and here in Europe too, people are taking matters in their hands. Like the feeling of joy from seeing nature cleansed of human pollution, there will be other things we’ll remember after the coronavirus is gone. The urge to come together for a good cause may be one of them. Crowdfunding is growing in importance.

People donated money to restaurants and café owners from Japan to London’s Tottenham to San Francisco to help them survive the lockdown. In the virus-ravaged Italy, people were quick to donate money to buy more ventilators, protective gear, and other supplies for hospitals. There are hundreds of other cases of volunteers donating equipment to fight the virus.

Building Businesses With Crowdfunding

And, at the risk of sounding like another manifesto, crowdfunding could give rise to some great businesses that deserve to stay independent. There are causes which deserve the opportunity to be owned by people, outside of the institutional capital that is naturally profit-maximizing. In 2003, during the threat of the SARS outbreak, researchers obtained the genomic sequence of the virus, ready to enter clinical trial, but once the emergency vaned, no big pharma would carry the tests because it wouldn’t be profitable. Now, an independent European biotech Axon Neuroscience is planning a European crowdfunding campaign to raise money for the development of COVID-19 vaccine based on its proprietary research in Alzheimer’s disease.

People tend to equate crowdfunding with a number of websites that serve as aggregators  -  the likes of startengine or seedrs. In reality, founders can stay completely independent and offer equity in their business through their own website, similar to what an initial public offering would look like, except without the investment bankers.

Offering The Equity In Business

In Europe, they can offer the equity in their business to the public after filing a Prospectus with a financial regulator in their country. After this is done, the companies can offer equity online through its own website, under its own brand. This matters not only because independent investors can fill the void left by private capital funds and government, but also because these investors can form a relationship with the founders and become loyal customers and brand ambassadors.

Much like after the global meltdown of 2008, when crowdfunding first emerged, the coronavirus crisis can be a catalyst for equity crowdfunding as a means for truly independent capital formation to give rise to businesses-for-good. Which one do you want to own?

About the Author

George Salapa is a cofounder of bardicredit GmbH, a Swiss financial advisory. Before that, he was in consulting (PwC), investment banking (Sberbank) and technology (Braintribe). His writing has been featured in VentureBeat, CCN, Forbes U.S. and other magazines.