Biggest Equity Crowdfunding Myth -- Debunked!

By Matthew Milner, on Wednesday, February 5, 2014

“This was the hottest deal in Silicon Valley…”

This quote, courtesy of CNN Money, is from Lars Dalgaard. Lars is a partner of Andreessen Horowitz, a top-tier venture capital firm.

He was glowing about their latest deal – a $15 million round for an online company called Zenefits.

I’ve never seen a deal like this,” gushed Mr. Dalgaard. “The top five [venture] firms all asked me personally whether they could get a chance to get in.

Andreessen knows how to make money. Their portfolio includes some the world’s most notable start-up success stories – from Facebook and Twitter to Airbnb and Skype.

But here’s why I’m writing about this deal today:

You could have owned a stake in Zenefits…

Thanks to equity crowdfunding, you could have been an investor right alongside Andreessen.

Let me explain…

Invest With The Best

As equity crowdfunding gathered steam over the last year, some folks raised concerns about it.

They questioned whether it would attract companies that couldn’t get funded the “traditional” way – from sophisticated angel investors, for example, or from blue-chip venture capitalists.

They wondered if only the “sub-par” companies would use equity crowdfunding… whether the most promising deals would still get gobbled up by the pros.

But the Zenefits deal offers an example that helps put these concerns to rest.

Let’s look at how the situation unfolded.

Proving Their Model

Last summer, in July 2013, Zenefits was raising money to grow its business.

They raised a bit of capital from strong angels like Yuri Milner – but to raise additional funds and increase awareness, they published their deal on WeFunder, one of the high-quality platforms we cover here at Crowdability.

Using a combination of traditional fundraising activities and more “modern” equity crowdfunding efforts, Zenefits eventually raised $2.1 million.

They used that capital to grow their business. Soon, more than 500 companies were using Zenefits’ online product.

Once they’d proven they had a viable business, they went looking for a new round of financing; they wanted to accelerate their growth.

That’s when Lars from Andreessen Horowitz swooped in to lead a $15 million financing round.

A Successful Path

The path that Zenefits followed – small checks from equity crowdfunding and angels, then huge checks from venture capitalists – makes a lot of sense.

In fact, we believe it will become a “standard” fundraising strategy:

Startups will begin their fundraising journey on equity crowdfunding platforms like WeFunder – and after they’ve raised “seed” capital and proven out their business, the big venture funds will step in.

You see, big venture firms don’t make their living writing small checks to unproven companies. If they’re operating a $300 million fund, that would be a lot of $5,000 or $10,000 checks.

They make their living writing big checks.

By having an ecosystem of investors, where the crowd can provide capital for a company’s earliest stages, and VCs can provide capital for its later stages, everybody wins.

The Next “Hottest Deal"

The moral of the story?

High-quality companies are on equity crowdfunding platforms. They’re there now – and more and more of them are showing up each week.

In fact, every Monday at 8am EST, Crowdability publishes a “deals” email with a variety of investment opportunities from some of the highest-quality platforms.

So keep your eyes peeled…

You never know when the next “hottest deal” will show up in your inbox.

Happy Reading – and Happy Investing!

Best Regards,
Matthew Milner

Founder
Crowdability.com

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