Crowdfunding is an incredible tool for entrepreneurs seeking capital at any stage of their business. Startup businesses can validate their idea through a rewards crowdfund, giving them great traction to share with potential investors through a follow-on equity crowdfund.
A successful rewards crowdfunding raise (typically offering pre-orders of a product), is becoming a common precursor to raising equity investments from prominent angel investors seeking an equity stake in the company.
Angel Investors and Equity Crowdfunding
Before crowdfunding, angel investments were often found within an entrepreneur’s own network. Family, friends, and close business associates were all pivotal in an entrepreneur’s search for capital, due to a ban on the public solicitation of investments created by the Securities Exchange Commission (SEC) in 1933. After President Obama signed the JOBS Act into law in 2012, entrepreneurs were finally able to publicly advertise that they were looking for investors. This public fundraising, also known as general solicitation, made equity crowdfunding a legal and viable option for startup businesses.
Equity crowdfunding is advantageous for both investors and entrepreneurs. It provides a unique advantage for angel investors, giving them unprecedented access to deal flow. They are no longer limited to time consuming in-person meetings and word-of-mouth deals, and can easily peruse and select deals by industry, traction, and amount on platforms like Fundable.
Equity crowdfunding also allows entrepreneurs to update and provide business plans and other diligence materials online, which streamlines the research investors complete before choosing a company to invest in. With a minimum investment of $1,000, it also allows investors to participate at lower minimums and further diversify their investments.
A New Breed of Angel Investor
Angel investors today can be professionals, like doctors or lawyers, or seasoned entrepreneurs interested in investing companies as well as mentoring entrepreneurs. They invest an estimated $20 billion in 60,000 startups each year. Angel investors do need to meet the SEC’s definition of accredited investors, requiring that they have a net worth of at least $1 million and earn $200,000 per year.
Even though equity crowdfunding is a new way for angels to connect with startups, we are already seeing angel investors flock to exciting crowdfunding campaigns. Below I’ve profiled some angels who have recently invested in crowdfunded companies.
1. Jay Adelson
Jay is a well-rounded serial entrepreneur himself, having founded Equinix, Revision3, and Opsmatic. He has served as the CEO of Digg, Revision3, and SimpleGeo and is a board member at Defense.net and NewAer. After the Ouya gaming console raised over $8.6 million on Kickstarter, it caught Jay’s attention as well as several other prominent angels.
2. Matt Mullenweg
Mullenweg is the founder and developer of Automattic, the business behind WordPress. He invested in SmartThings, a home automation startup that raised $1.2 million dollars through a rewards crowdfund. He takes his commitment as an investor seriously and is a vocal advocate for the growing company, even opening his home to the media to show the world how he uses SmartThings in his daily life.
3. Elad Gil
Elad is the co-founder of a genomics company as well as Mixer Labs, creators of a location engine for developers and a local information site. He formerly served as the VP at Twitter and started the mobile team at Google. Elad is an investor in Formlabs, the creators of the Form 1, a low-cost 3D printer for designers, engineers, and other creators. Formlabs raised $2.95 million through a rewards crowdfunding campaign before enlisting angels like Elad.
4. Andrew Busey
Andrew is the CEO and founder of Challenge Games, which was acquired by Zynga and the Co-Founder of Pluck, acquired by Demand Media. He is an early stage investor in Ube (now rebranded to Plum), a home automation startup that raised over $307K through rewards crowdfunding and $760,650 through equity crowdfunding on Fundable.
5. Bobby Yazdani
Yazdani is the founder of Saba Software, a public software company. He is a prolific angel investor with over 20 years experience investing in early stage companies. He recently invested in the successfully-crowdfunded Canary, a connected home security device. Canary raised $1.9 million via Indiegogo before raising $10 million in follow-on equity investments.
6. Dave McClure
Dave McClure is an incredible advocate for all entrepreneurs, having founded 500 Startups, an incubator based in the San Francisco Bay area. He previously started Aslan Computing before working as the Director of Marketing at PayPal.
Often dubbed a super angel investor, McClure is an investor in MakerBot, a 3D printing startup that raised $1,438,765 through crowdfunding. Disclosure: Dave is also an advisor to Fundable, the business crowdfunding platform I founded.
7. Farzad Nazem
Farzad was the founding CTO of Yahoo for the company’s first 11 years, making him one of the longest term executives there to date. During his time there, he spearheaded over 40 company acquisitions, giving him a unique insight into the characteristics of a company on the rise.
After retiring from Yahoo, Farzad began investing in startups, and is an active angel investor, mentor, and adviser. He invested in Scanadu Scout, a scanner that reads your vital signs in mere seconds, sending analytics to your smartphone. Scanadu raised $1.6 million via crowdfunding before approaching angel investors like Farzad.
Getting the Attention of Angel Investors
Angel investors have always played a critical role in the way businesses get started. With the legalization and growth of crowdfunding, they now have an easier way to assess a company’s traction and accomplishments. They also have access to more deals than ever before.
At Fundable, we’re seeing the impact of angel investors growing daily, as more entrepreneurs and investors begin to take advantage of equity crowdfunding and get the opportunity to fund a new generation of great companies.
Wil Schroter is the Founder + CEO @ Startups.com, a startup platform that includes Bizplan, Clarity, Fundable, Launchrock, and Zirtual. He started his first company at age 19 which grew to over $700 million in billings within 5 years (despite his involvement). After that he launched 8 more companies, the last 3 venture backed, to refine his learning of what not to do. He's a seasoned expert at starting companies and a total amateur at everything else.