Return on Change

In finance, we often talk about the difference between a strategic and a financial investor. The difference between the two is exactly how it sounds – a strategic investor is one that has similar motivations and goals as the company seeking investments, while a financial investor is motivated by simply making returns through the future growth prospects of the investment opportunity. When it comes to crowdinvesting for startups, startups are sometimes concerned because they are afraid of missing out on the opportunity to get guidance from seasoned angel investors upon a successful crowdinvesting raise. Some believe that the crowd brings together a pool of financially driven investors who are unable to provide any strategic benefit.

Myth: Companies that turn to crowdinvesting will lose out on the chance to meet strategic angel investors.

Reality: More often than not, angel investors will participate in a crowdinvesting round. Angel rounds are not mutually exclusive with crowdinvesting rounds.

Here are 2 reasons why seasoned angel investors will participate in crowdinvesting:

(1) Execution speed with additional capital

Angel investors are often only one component of a capital raise and need to circle additional capital through their own personal networks which is a time consuming process that detracts value not only from the investor but the startup as well.  The more delay there is in getting investors to fully circle a transaction the more risk there is to the startup company as well.  Investors are incentivized to act quickly and efficiently. The crowd providing this additional pool or capital could be tremendously helpful.

 

(2) Angel investors might gain more confidence in an opportunity with a crowd pooling

For certain investment opportunities, angel investors will recognize the power of investing alongside the crowd. The success of most companies is tied to its ability to get people to use their product. If angel investors see that the crowd is interested in a business, it will incentivize them to lead certain equity investment rounds. Thus, crowdinvesting rounds could bring together the angel investors that the startups are ultimately looking for.

No one can argue the benefits of guidance from a seasoned angel investor, but crowdinvesting will help entrepreneurs reach a network of individuals who can benefit them as well.

 

Have any crowdinvesting doubts? We’d love to hear from you. Feel free to email us at roc@returnonchange.com or leave a comment below.

RELATED: To see our other crowdinvesting mythbusters click here.

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Young Cho
Young is a graduate of New York University’s Stern School of Business with a degree in Finance and Statistics. As the Finance Director at Return on Change, he is responsible for assisting startups through the initial stages of onboarding to the platform and maintaining all internal finance related matters including, budgeting and strategic initiatives. Young previously worked as a Project Finance Analyst at BNP Paribas, covering the infrastructure, power and energy space, where he was responsible for providing financial analysis and due diligence for project advisory and origination.Young also has significant experience in the clean energy space, specifically in the distributed generation solar sector. Young is interested in discovering products and ideas that are founded upon changing the way we live for the better.
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