Survey Sheds Light On VC Expectations For Equity Crowdfunding

A report released last month entitled Equity Crowdfunding and Venture Capital included some interesting revelations regarding what US venture capitalists and lawyers expect from equity crowdfunding.

The report surveyed VCs and lawyers based in the states. Questions sought to gauge expectations about the JOBS Act’s trajectory and future effect.

  • Overall, most view equity crowdfunding in a positive light
    Two thirds of those surveyed either think the JOBS Act is a good idea or are withholding judgement until the SEC sets forth rules governing the process of raising capital via equity crowdfunding. There have long been concerns about overregulation and that regulation translating into costs for the entrepreneurs raising money. VCs were more bearish than lawyers on this question, pointing to their own expertise as a missing piece in the crowd. As one VC was quoted, “Funding startups and making them a success to get returns is not as simple as it looks. We ourselves have faced multiple difficulties despite our efforts and strict investment
    conditions.”
  • Most expect implementation during the first half of 2014
    Two thirds of respondents expect equity crowdfunding to be rolled out six months to a year from now. Only 8% see equity crowdfunding becoming legal by the end of 2013.
  • Fraud and the difficulty of managing numerous investors were the chief concerns
    Despite the oft-mentioned stats outlining the rarity of fraud in equity crowdfunding overseas, fraud continues to be top of mind when considering the risks presented by equity crowdfunding’s implementation in the United States. A third of respondents listed it as the chief concern. The same number believe managing numerous distributed investors would be the biggest challenge going forward, although startups like Sharewave are queueing up a service sector to serve that specific fear. There were also concerns about the $1 million cap. From the report…

    One-fifth of respondents point to the limitations of capital raised (capped at US$1m per year) as the biggest challenge. As one lawyer explains: “Equity crowdfunding is only suitable for very small scale startups and will not be of use for those which have multidimensional expansion plans.”

  • Retail is still expected to be king
    Continuing with the strength of “pretail” in the crowdfunding space, most respondents did expect consumer goods to dominate the equity crowdfunding space in the future. The relatability of the sector to investors was cited as a primary reason why so many respondents expect the sector to see an influx of capital from the crowd.

    One venture capitalist explains the tangibility of the sector: “People understand consumer products because they shop for them directly and understand their viability. Consumer products companies can achieve positive cash flow relatively fast giving the possibility of quick returns.”

The report was a joint effort between RR Donnelly and MergerMarket. RR Donnelly is a print and digital media service provider and MergerMarket specializes in news and analysis for M&A professionals.

The PDF is below…

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