Mythbuster: Funds Are Not “Smart Money”

Introducing the 1st of our weekly Wednesday series, “Crowdinvesting Mythbuster”. While working in this industry we’ve heard both sides of the story, and we want to tackle the reasons against crowdinvesting and give our rebuttal. Our first post addresses something we’ve heard often in the industry – the criticism that crowdinvested funds are not necessarily “smart money”.

Myth: Companies that turn to crowdinvesting (aka equity crowdfunding) would lose out on the chance to get guidance from seasoned angel investors. Some of what investors often bring to the table are industry experience, market intelligence and a valuable contact list. Aka “crowdinvesting is not smart money”.

Reality: There are many folks that are seriously concerned because the crowd is unable to bring requisite advice and mentoring that VCs would be able to bring. It’s undeniable that having a roster of heavy hitters is valuable in growing a new business. However, mentorship and advisors are just a few of the elements of growing a successful business. Here are some of the reasons why crowdinvested funds can also be considered “smart money”, even if they may not come from a VC.

The Crowd Can Bring Numerous Advisors
The crowd has the ability to bring countless experts and advisors to the table. While everyone might not be able to provide 24/7 customized advice, the fact that they are investing or have expressed interest implies that they are vested in the startup’s success. Specialists across wide geographic areas can now also become active members of your crowdsourced ‘advisory board’.

Supporters, Not Just Investors
When taking capital from VCs, you are taking money from professional money managers. Their job is to generate return on their investment which means your livelihood is less important than the success of your business. Most angels, while also expecting a positive outcome from their investment, are staunch supporters of the founders and the mission of the business. Therefore, as inherent marketers, the crowd (of angels) are more than just financially invested in your venture.

Advice from the Customer
There is an increasing call to take feedback from the customer; that is the end user after all. What better way to do it than to take investments from the end user? Getting real life feedback is definitely more useful than just taking advice and expertise from a small select group of individuals, wouldn’t you say?


By Sang Lee

See also:

Why Title II Isn’t Bad for Angel Investors 

5 Simple Tips for Startup Funding 

Get Ready for Equity Crowdfunding 


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Sang H. Lee
Sang is the founder and CEO of Return on Change. He's constantly searching to help startups that are looking to change the world! He's a leader in equity crowdfunding and is always happy to help entrepreneurs and startups. He previously worked as an investment banker in the energy field at WestLB and BNP Paribas, accruing a wealth of expertise in financial regulation, business, and financial structuring. Sang is also the Executive Director of CF50, a global think tank of thought leaders within the crowdfunding industry. You can find him on Google+ and Twitter.
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