It may sound like conjecture to some, it may even sound disastrous to others. Entering into a potential age of lawlessness and the wild, wild west of fake snake potions and promises of gold in the promised land. However, if you really take a step back and think of what crowdinvesting will do, it will instigate a revolution within the business and financial industries. A paradigm shift of who bears the risk and reward of early stage, high impact and explosive growth companies; responsibility falling on the very end users who want to see businesses developed!
We are allowed to vote on the leaders which determine our very fate for the next 4 years, but until now we were banned from speaking up on what businesses we thought were great ideas, awaiting the fatal judgement blow delivered by wealthy individuals or large financial institutions. The new age is here!
The Millenial Age of Millionaires has Arrived
Not to be misunderstood, the majority of investors will not reap large benefits and may lose every single dollar invested. However, now the world of millionaires will be opened up beyond the usual ranks of successful serial entrepreneurs, angel investors and venture capitalists. The stakes will be a bit more marginal than most, but have you every considered what 1% of Facebook’s current valuation is? Let me help you out, it’s approximately $1.0 BILLION (before taxes of course).
Early Stage Business Risk Taking is Now Different
Beyond your atypical angel investor for whom investing is a past time more than an occupation, all of the aforementioned parties (serial entrepreneurs, angel investors and venture capitalists) invest in these start-ups to generate a return. However, in order to generate adequate levels of return for the amount of risk taken, often these investors have to require very onerous contractual terms, large equity stakes or very strong control rights over the company they are investing in. But now crowdinvesting can change the idea from purely doing it as a return on equity to generating a return on change! Investors only investing affordable, if not nominal, amounts of money (without getting too technical) inherently changes the effect of risk (as losing this money will not change my life) and so they can command less strict terms while supporting a business they love. And who knows… you may have an amazing exit!
The Financial Curve of Risk -Return will Shift to the Right
We are going to see a shift in where all the players reside, once crowdinvesting has become a staple method for start-ups to raise their financing. I’ll leave this one here for now, but venture capitalists, investment banks and lending institutions will be facing a much different risk profile in the future. Investment banks charge high fees ‘because of the inherent risk associated with their involvement’, but will they still be able to do the same thing, if this risk will decrease?
All of the Start-Ups that typically fall by the wayside, will now come to LIFE!
Some opponents of crowdinvesting have quoted the concept that only inherently good ideas should come to life and the reason the start-ups that are not successful in receiving funding is due to the fact that they are not good ideas. Seriously? You think that the likes of the top 0.005% of the wealthy individuals can decide what YOU think might be a good business?
Even to take this one step further, one of the premier accelerators, Y Combinator, is accepting applicants that DON’T HAVE AN IDEA! The new fashion of start-up is to pivot!!
I take this as pointing to the underlying fact that there are so many good ideas out there whether we know them are not and all we need is the opportunity to see them and get involved.
Are you ready to ride the revolution?
By Sang Lee