Venture capitalists achieve remarkable success not just because they sit on a large war chest of cash. They achieve success because they’re ahead of the curve. They know what’s coming next.
There has been some considerable debate on whether crowdfunding will change the game for venture capitalists, cause them worry, or eliminate them completely. Not to worry, all you VCs out on Sand Hill. Your position is safe, and in fact, it has never been better.
First of all, crowdfunding, as it is defined by the JOBS Act, will be for issuing equity raises of only up to one million dollars, and the majority of initial crowd offerings (ICOs) will be for far less, and below the radar for most VCs. That said, there is an opportunity here that savvy venture capitalists and investors are already seeing and acting on.
One of the biggest challenges in venture capital is in vetting companies, and facing potential losses from backing an untested concept. Crowdfunding gives startups and emerging companies a shot at a launch—and at proving themselves—without any one person making a major financial commitment. Venture capitalists can use this new venue to seek out proven companies to fund later on down the road.
By making a smaller investment at the beginning of a few thousand dollars, a VC is able to take an early stake in a company that has potential, without taking a major risk. This gives the VC a chance to get an early seat at the table, see the company grow and perhaps even help guide it, without having to put up millions of dollars at risk. Once the startup has had a chance to accumulate capital from the crowd, prove their concept, and get some traction and attention. From there, the venture capitalist knows what to do.
In short, crowdfunding will ultimately lead to more strategic investments on the part of investors, angels and VCs. In addition, it will lead to startups not only enjoying better financial support, but a more sophisticated “crowd” that includes savvy VCs, who can help guide the crowdfunded company to success.