In our 2nd week of our Crowdinvesting Mythbusters Series, we address another common myth that professional investors are not likely to use crowdinvesting, or otherwise known as equity crowdfunding.
Myth: Professional Investors are not likely to utilize crowdinvesting.
Here’s the Reality:
Investment Platforms Should Be a PI’s Best Friend
Technology has equipped us with tools that make launching startups easier than ever before, and that is great. But the numbers of professional investors have not proliferated at nearly the rate that startups have. This does not mean that it’s an investor’s market. This means that the startups that come into their view are a small fraction of the total. Investors are essentially mining for that one gem, blindfold. That’s precisely where crowdinvesting comes in: to remove the blindfold and bring a larger field of view into focus for investors.
Unbalanced Dichotomy Between Startups and Investors
To set the stage, on one side of the off kilter scale we have investors- private equity, venture capitalists, personal wealth, etc. In aggregate they are a relatively small group. Professional investors (PI’s) are a finite number of investors who have the willingness and capacity to make (sizable) investments into seemingly promising startups.
On the other side of the scale we have entrepreneurs. With rampant technology dissemination and endless gadgets the barrier for launching a startup is lower and so this group is relatively large. Startups are in the order of hundreds of times larger than investors. With the inception of each startup comes an investment opportunity, but due to the shear volume of startups occupying the space, it is instantly buried in the clutter of information.
Given this unbalanced dichotomy between startups and investors it’s hard to fathom that each startup can be properly identified, screened, valuated, and invested. One can argue that a successful capital raise is largely dependent on visibility and serendipity. The right startup needs to somehow make it in front of the right investor at the right time. This catch-as-catch-can style is neither in the favor of investors nor startups.
The only way to make sense and benefit from all the information crammed in the venture sphere is to organize it. The ban of general solicitation does just that by providing structure through investment platforms. Here, each venture is showcased in an organized, localized and digital fashion. These platforms transform the investment landscape creating a marketplace where investors can deliberately connect with founders. Worthy ventures will be identified faster and unworthy ventures will die out based on natural market selection.
PI’s that shy away from crowdinvesting to avoid dealing with a possibly fragmented investor base are doing themselves a disservice. This forum makes sense of the clutter and brings investment options to light. PI’s in theory can then view hundreds or thousands of startups, and make better-informed investment decisions while diversifying their risk.
Let’s face it, we all need organization in our lives. The investment industry is no different, and crowdinvesting provides that architecture. Investment platforms are necessary for startups and investors alike. Crowdinvesting is here to stay, so let’s learn to utilize this new tool!
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