In a letter addressed to NYTechMeetup, President Obama mentioned crowdfunding as one of the tools available to grow the tech startup industry. As the CEO and co-founder of CircleUp, the largest equity-based crowdfunding site in the U.S., my views on the merits of crowdfunding are no secret. However, I disagree with the assertion that crowdfunding is a good way to grow tech startups—crowdfunding is an amazing vehicle to make inefficient capital markets more efficient for some companies; however, there are many types of companies that are not good candidates to raise money via crowdfunding. Below are four signs that a company is NOT a good candidate for crowdfunding:
1. The company is a tech company. One of crowdfunding’s greatest benefits is that it makes capital markets in inefficient industries more efficient. Tech is definitely not one of those industries. Tech companies have an existing wealth of resources to get in front of potential investors: demo days, incubators, well respected publications like TechCrunch, and most importantly ample angel and venture capitalist money that is earmarked for investments in the tech space. Over 70% of the $28 billion of venture capital financing in 2011 went to businesses in the tech or life sciences spaces. In short, venture capital financing is what you get if you’re a tech company worthy of investment. If a tech company can’t get traction through one of these well-established channels, the most likely reason is that they simply don’t have a viable business plan. And crowdfunding won’t change that. Think about this- if you’re investing in an e-commerce business or a social media company through a crowdfunding site, don’t you think those companies approached Sand Hill Road first? They should have. And their failure to generate interest on Sand Hill Road should provide some pause. One might reasonably ask–if you see a tech company seeking crowdfunding–what didn’t the hundreds of venture capital firms in the country like about it?
To read the original article: 4 Signs A Company Is NOT A Good Candidate For Equity Crowdfunding - Forbes
