When it comes to investing in the stock market, you can turn to many, many places for professional advice.
You can talk to your financial advisor or stockbroker.
You can turn on CNBC and listen to the “talking heads” from one of the big banks or hedge funds.
You can even subscribe to an investment newsletter written by industry veterans.
But when it comes to early-stage investing, your options are more limited.
That is – unless you have millions of dollars to invest.
You see, historically, wealthy individuals (as well as the largest endowments and pension funds) have hired venture capitalists – or “VCs” for short – to manage their early-stage investments for them.
Unfortunately, you were locked out of those opportunities...
... Until now.
The Big Boys
Venture funds are private, just like the start-ups you invest in.
And they have the same sort of limitations on them. For example, they’re not allowed to put up a webpage and tell the world that they’re accepting new investors.
You see, according the Securities Act of 1933 – a set of laws Congress put in place after the 1929 stock market crash – private companies (including venture funds) can only solicit capital from wealthy investors with whom they have a pre-existing relationship.
Therefore, unless you were worth millions of dollars and already had a relationship with a VC, you couldn’t have invested in their funds.
But thanks to the JOBS Act, venture funds can now tell the world that they’re accepting new investors. And that’s precisely what one notable venture fund is doing today.
A Crowdfunding First
For the first time, a major seed-stage venture fund is opening its doors and allowing the general public – in other words, you – to invest in their next fund...
The fund I’m referring to is called 500 Startups. It’s run by a Silicon Valley icon, Dave McClure.
Dave has been an entrepreneur and investor for over 15 years.
Through his fund, he’s made over 400 investments across 25 countries.
A couple of his notable investments include Mint.com, which was acquired by Intuit for $170 million, and MakerBot, which was acquired by Stratasys for $604 million.
Now, Dave is raising capital for a new fund...
And he’s allowing you to participate.
To pull it off, Dave has partnered with SeedInvest.com, one of the platforms we feature regularly in Crowdability’s Weekly Deals email.
To my knowledge, a VC has never raised funds like this before.
Why This is a Big Deal
There are at least two reasons why this is a significant event:
1. This is the first of what we predict will be a major trend in early-stage investing and venture capital.
Why? Because returns in other asset classes don't even begin to compare to the types of returns you can see in early-stage investing. For example, the market has historically returned only 8% per year.
Early-stage investing has returned a staggering 27% per year.
Now that individual investors can participate in early-stage investments, we predict many will start to pile into this asset class. And in turn, will look for professionals, like VCs, to help them manage their money.
2. Because a venture fund is raising the capital with help from a crowdfunding platform.
Instead of going through the traditional process of face-to-face meetings, 500 Startups has opted to go a more modern route and accept funds online.
Again, we think this is just the beginning of a much larger trend. And it also lends a lot of credibility to crowdfunding websites.
If high-quality VCs will raise capital this way, high-quality companies surely will too.
We spoke with SeedInvest’s CEO, Ryan Feit, last week and he had this to say about the deal:
“This deal is another strong validation of the fact that innovative early-stage investors [like McClure] are figuring out how to work with leading platforms. The trend of top platforms working closely with the existing investor ecosystem is one that will continue to accelerate as the market matures.”
What’s the Catch?
The 500 Startups opportunity is exciting, but there’s some fine print:
1. You still need to be accredited in order to invest. Meaning, you need to earn more than $200,000 per year, or have a net worth over $1 million.
These requirements will likely change once the JOBS Act is fully enacted, but for now, this is the law.
2. While the minimum investment hasn’t been established yet, it’s likely to be high – certainly 5 figures, and maybe 6 figures.
3. This is likely to be a popular investment, and not all investors will be accepted. So if you’re interested, you should head over to http://500.co/invest today and apply.
Please note, Crowdability has no financial relationship of any kind with either 500 Startups or SeedInvest.