With companies staying private longer, it's essential for the retail investor to be able to navigate the private company investing landscape comprised of equity crowdfunding, syndicates, and rolling funds.
Explore the tech investing landscape - Public access to private tech deals.
In 2017, SoftBank announced the largest venture capital fund of all time...the $100B Vision Fund. Their mission was to exclusively lead “mega rounds” - a term applied to any financing above $100M.
In 2018, I was working in Venture and received an email from an executive at the food delivery startup DoorDash, who had just raised a monster $535M from the kingmaker themselves - Softbank. They asked me to introduce them to an executive I knew at WeWork, who had also recently received over $4B from Softbank.
The topic of their discussion is probably one that most companies would have after you receive more money than you know what to do with…
Specifically, “How do I prepare my company to be able to handle unprecedented levels of growth.”
This day opened my eyes to a tech investing trend that would come to shape the decade - With access to money, companies are staying private longer.
This is an important trend to recognize.
If companies can raise enormous sums of capital without having to go down the IPO path, much of their value creation, and subsequent investor returns, are generated for “insiders” before they are available to the general public.
Let’s review some examples:
Do you see it?
Unless you are very well connected, you probably don’t have access to today's leading tech companies (e.g Stripe, SpaceX, Instacart) or venture-capital funds (e.g Andreessen Horowitz and Sequoia Capital) that are winning at this game.
Needless to say, the private investment landscape operates in an opaque world that is largely inhabited by wealthy investors with direct links to capital allocators that have access to lucrative investment opportunities.
However, the access game is changing…
With easing regulations and further enablement of private investors, there are an increasing number of vehicles in which private investors can get access to the early and growth stage tech market.
Let’s explore some of my favorite investment options available in the private market suitable for various classes of investors:
Equity Crowdfunding enablescompanies to raise capital from the crowd over the internet. Itis catching attention in the wake of the media coverage that Sahil Lavingia received with Gumroad’s $6 million fundraise. While $6 million is impressive, it’s not the amount raised that was exciting. Gumroad has become a figurehead company in the creator economy movement and likely had multiple tier 1 investors offering them money. In short, Sahil had the option to have the world's best VCs support his company. Instead, Sahil raised $1 million from prominent angel investors Naval Ravikant, Founder at AngelList, and Jason Fried, Founder at BaseCamp, before opening the remaining $5 million up to the crowd, which closed in a number of hours.
While the Gumroad fundraise caught media attention, the market for crowdfunding has been quietly exploding. In 2017, ~$500M was raised via crowdfunding. In 2020, just 3 years later, over $1.7B was raised via crowdfunding. As a tool, equity crowdfunding can be enormously powerful. Not only can companies raise large sums of money, they can do so with the support of their customers, users, and avid fans. Increasingly, top-tier companies are seeing this as a viable path to raise capital.
Like any tool, it can be misused. I have seen many companies misleading investors, or raise on investment terms with no possibility of returning investor capital. It is important that investors recognize that the fundraising platforms do an amazing job of enabling this access, but spend very little time teaching investors how to diligence private side investment opportunities.
We will speak with the top companies raising across popular crowdfunding portals (e.g Republic.co, SeedInvest, WeFunder, StartEngine) to help you make sense of these investment opportunities.
Syndicates are another unique vehicle to get access to private technology companies. A syndicate is an investment vehicle that allows investors to co-invest alongside reputable investment managers. Once you follow a Syndicate lead, you have the opportunity to invest in the deals they source. It’s important to note that you invest on a deal-by-deal basis, meaning you don’t have to invest in every opportunity the syndicate refers to you.
Over the last few years, many of these syndicates have made the internet their home, with some of the country's top investors forming their own syndicates. Established companies like Calm.com (Raised $218M), Cruise (Acq. $1B by GM), Brex (Raised $1.2B), PostMates (Acq. $2.7B) all got their start by raising from Syndicates.
There are many Syndication platforms, but Angellist is the most well known. As of today they host over 580 syndicates on the platform, over 300 active deals, and 2,685 deals have been completed in the last 12 months. It’s pretty incredible.
We'll be speaking with notable Syndicate leads and learning more about why they’ve chosen to expose their investment process to the public, what trends they’re tracking, and where they’re investing their money.
Rolling Funds are one of the most exciting new additions to the investment landscape. Developed in February 2020 by AngelList, Rolling Funds make it much easier for investment managers to spin up a new fund.
The main difference between rolling funds and traditional VC funds, is that rolling funds can accept new investors on a quarterly basis, whereas traditional VC funds have to raise their entire fund before they can start investing. Because of this structure, traditional VCs typically raise their fund behind closed doors from high-net-worth individuals and institutional investors - leaving smaller investors with no access.
Rolling funds are unique because they can continually accept new investors, enabling managers to get started with relatively little capital and requiring far less in commitments.
As someone who believes that startups make the world a better place, I am incredibly excited by this shift. The huge increase in the number of fund managers will lead to a far greater number of exciting companies that are able to raise capital.
For investors like you and I, it gives us more exposure to early stage technology companies without the enormous capital outlay required by traditional venture capital funds.
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