During the pandemic, when the need for help, relief, and targeted aid was at a high point, we watched the digital transformation change the way we fundraise. The adoption of peer-to-peer fundraising was always coming, but it’s since picked up speed. Peer-to-peer fundraising relies on digital platforms where individuals can create a template page for their cause and accept donations through digital payments from friends and family. It’s proved a promising way to bring more speed and personalization into grassroots organizations and personal campaigns.
A parallel trend can be seen in the for-profit space. New-to-market vendors are surfacing important solutions to our existing and novel pain points, time wastes, and larger anxieties. It’s an advantage to everyone if those founding teams have what they need to extend the reach of their solutions. Generally, they need a pipeline of prospective consumers, the advice of good mentors, and the resources of an angel or venture capital investor.
It seems self-evident: the sooner we get the real innovators to market, the better. So in a crowdfunding vs. venture capital showdown, which one brings founders up faster?
The Frequently Asked Question—The Difference Between Venture Capital & Crowdfunding for Founders
On the part of early-stage companies, the interest in crowdfunding strategies is well-founded. The platforms offer a number of important benefits to founding teams. Going live on a crowdfunding platform can be a great customer acquisition strategy. The launch becomes a marketing event, a test-run, and a fundraising opportunity; all important areas of focus for a company in its early beginnings.
The downside founding teams have to contend with is the potential for a public-facing raise to impede a traditional fundraising process. Angel investors and VCs might observe the performance of a company’s crowdfunding campaign as a part of their due-diligence, adjusting their support in accordance with the company’s platform performance. But for start-up companies who can be confident that they’ll see an oversubscription of support and interest on the platform, this is a risk worth taking.
A Future Fast Lane—For Investors
What about equity crowdfunding vs. venture capital equation from an investors point of view? As it stands, there remains a good amount of skepticism on the part of investors, a hesitancy that’s more pronounced in certain sectors. But the proliferation of opportunities across crowdfunding platforms could be even more beneficial to investors than it is to founding teams.
Agility, freedom, and flexibility are shaping our post-COVID standards. Crowdfunding is arguably the best answer to all three. Safe and easy to use platforms have the power to flip the traditional finance model for new investors; invest in your 401K, build equity in your home, and spend a lot of time waiting.
Crowdfunding investments render the need for intermediaries obsolete; investors don’t need to work through brokers who take large fees out of the deal flow, or firms who introduce more red tape.
There is now a direct route to the founder—their team and their future plans. Investors have access to lower-fee, smaller-scale transactions with a team that’s a click or a phone call away.
As it continues to come around the bend, crowdfunding will soon be an important part of portfolio diversity. The increased access allows investors to diversify their portfolio without having to save up for deal minimums that are far out of their reach. Instead of slowly concentrating a net worth across a series of index funds, investors can start to personalize their ventures earlier, and take a smaller part in bigger ideas at an earlier stage.
The Real Estate Consensus—Equity Crowdfunding vs. Venture Capital
Some of the investor pessimism is concentrated in the real estate sector. A space that’s traditionally more resistant to technological change, the traditional view within real estate is one of hesitation. There seems to be a widely held conception that projects on the platforms might be there by a kind of last resort; a project that failed to raise equity funding conventionally is looking for bite-sized contributions.
But if investors in the space view crowdfunding deals as other investor’s leftovers, they risk missing some of the hottest deals in the space. Luckily, those kinds of lessons are always learned quickly, and real estate investors tend to take notice of the consensus among their industry peers. Once a respected project sees success through a crowdfunding platform, and more investors start to adopt the strategy, there’s no doubt in my mind that we’ll see a crowdfunding migration by many investors within the real estate space.
Personally…
I always have an eye out for the future. For up and coming founders considering the matter of crowdfunding vs. venture capital, I think technology will only improve crowdfunding offerings. It’s a space in which I look forward to seeing some accelerated change.
AI-empowered platforms will begin to replace traditional funds that aren’t tech-enabled. Investors will become more comfortable and start preferring the transactions that don’t involve fund managers or fees, and founders looking for venture capital investors will instinctively gravitate toward the crowdfunding strategy.
In the coming years, we could see the space make a change that mirrors what the AirBnB model did to the hotel industry. Like all good things, it won’t make sense until it makes sense. But it’s a future I see coming, and full of opportunity.