VCs warm to Reg CF
No one ever accused venture capitalists of humility. They promote themselves as societal prophets, peering into the future and funding the hotshot startups that change the way people live while taking a large part for themselves.
To be sure they have, in aggregate, funded such companies and in the process supported Silicon Valley’s vanity-plate-adorned luxury car market. Nearly every major Silicon Valley startup that made it big at some point ventured up. The rest are currently looking for VC money as they hone their pitches in meetings before the splendored demigods.
But despite self-perception, VC track record is quite poor. For every Facebook there are three social-media startups with lots funding but no users. According to Harvard professor Shikhar Ghosh 75% of venture-backed businesses fail and up to 40% of those are total wipeouts.
Reg CF provides startups market advantages
Equity crowdfunding (Reg CF) which allows retail investors to risk their money on startups and private businesses offers a new avenue to test market acceptance and improve VC success rates. Reg CF has already proven more resilient than other companies as Crowdfund Capital Advisors noted in a lengthy report on Reg CF earlier this year. Collecting data from the Bureau of Labor statistics, 50% of new businesses failed in the first five years, but that figure reduced to just 17% for those that did a Reg CF raise.
In fact, Reg CF offers startups and small businesses numerous advantages including;
- Broaden your investor base: Unlike other funding models, Reg CF can diversify your investor base from both a financial and geographical standpoint. Reg CF portals can accept investors from anywhere in the US, giving your business a potential foothold in all 50 states.
- Turn your customers into marketers: Reg CF allows your customers to become financially invested in your business and see their investment grow as your business grows. This provides a free marketing campaign for your business with every new investor.
- Incentivize your investors: Reg CF allows you to provide perks as part of the investment. Depending on the product this could include the product itself, ‘founder’ status on your website, access to events, or anything else that may induce an investment.
- Prove value to institutional investors: A successful Reg CF raise can show larger, institutional investors your business is ready for the big money. Many larger investors are now requiring “social proof” of a company’s business model. Your business can show larger investors value and momentum and provide your business “bridge money” while larger investors evaluate your model.
VCs warm to Reg CF, acknowledging low risks
Now after years of sneering at or ignoring Reg CF, those institutional investors (venture capitalists) are recognizing these advantages. A CCA blog post notes the VC-Reg CF relationship is “evolving.” It specifically cites legendary VC firm Andreesen Horwitz joining a Reg CF raise for Levels Health. The reason is becoming more obvious by the day. Reg CF allows companies to validate their market at low VC risk.
At present, the most Reg CF raises can offer is $5M. A VC anchor investment of $250k jumpstarts this raise and allows the company to prove retail support and long-term viability. It also increases brand loyalty through various perquisites and aligns economic interests. This makes a good bet for both the venture capitalist, the company, and the retail investors who can invest alongside professional investors on the same terms.
Reg CF is expected to reach new heights in the coming decade. After shunning the scrappy exemption for years, VCs who care about success rates are finally taking notice.
If you’re ready to explore how Reg CF can help your business sign up for a free 30-minute consultation: https://www.thecrowdfundinglawyers.com/cfl-scheduler/
By Jossey PLLC
