Do You Know What Crowd Funding Is?by Tony H. Myandurbiz
Some have said equity crowdfunding could put pressure on the venture capital industry. But data compiled by crowdfunderEquityNet suggests it will open whole different categories of upstarts for funding instead.
"Crowdfunding is serving the area of capitalism that was previously underserved,"Judd Hollas, chief executive of the platform launched in 2005 told me. EquityNet, based in Arkansas, connects companies with accredited investors but will expand to offer equity crowdfunding open to all once the SEC issues rules allowing the practice.
Companies have raised more than $200 million on the platform since its inception.
A broader range of companies have raised money on EquityNet than the strictly tech focus of many venture capitalists and angel investors. And investments in those companies have come from a more geographically diverse group than is the case for venture capital.
"It's not focused on California or New York or Boston as venture capital has been," Hollas said.
According to the company, a completely different type of startup raises money through equity crowdfunding than is in vogue among venture capitalists.
About half of the companies using equity crowdfunding are consumer and business product or service companies, a category that attracts less than 10 percent of VC activity. About 75 percent of the companies raising money on crowdfunding sites are startups, with no revenue, and 75 percent aren't tech startups.
"There's a whole business domain out there that was not attractive to venture capital and angel capital," said Hollas.
Further, the companies that have raised money on EquityNet don't need that much money. At least, they don't need as much money as venture capitalists typically invest.
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