Steve Case, a staunch proponent of investment crowdfunding and advocate of access to capital for SMEs, called out billionaire pundit Mark Cuban on CNBC this morning.
Ostensibly the discussion was on the Tech Bubble “Yes or No” polemic but discourse ended up being a bit of a backdrop for a discussion regarding the efficacy of crowdfunding for SMEs. Case believes that small companies should be able to have efficient access to finance from a broader audience. Case, a billionaire himself after he adroitly “purchased” Time Warner when he was at the helm of AOL, noted that angel investors play a vital role in supporting entrepreneurs (and thus job creation and economic growth). Case wants to allow more people to be able to invest in these startups. Case is bullish on crowdfunding and mentioned CircleUp investment crowdfunding platform as a successful example. Case clarified that “most entrepreneurs don’t think there is too much capital”. He acknowledged these types of investments were risky and that many will fail but that some will eventually succeed. Case qualified Cuban’s opinion as being “skewed by the circles he runs in”. Daymond John, of Shark Tank fame, joined in the conversation stating there are “a lot of angel investors who are not qualified” who are coming into the market.
Cuban made the bulk of his wealth when he sold Broadcast.com to Yahoo for $5.7 billion – at the height of the dotcom boom. Timing was everything as the market soon collapsed leaving many internet companies as gutted carcasses. Cuban quickly sold his shares in Yahoo near the top becoming an instant billionaire.
This week in a post on his personal blog, Cuban posed the question, “Why This Tech Bubble is Worse Than the Tech Bubble of 2000”. He went on to criticize equity crowdfunding saying,
For those who can’t figure out how to be Angels. You can sign up to be part of the new excitement called Equity Crowdfunding. Equity Crowdfunding allows you to join the masses to chase investments with as little as 5k dollars. Oh the possibilities !!
I have absolutely not doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher
Why ? Because there is ZERO liquidity for any of those investments. None. Zero. Zip.
The question of liquidity in the private markets is a hot topic on both Capitol Hill and within the halls of the SEC. On the same day that Cuban published his opinion there was a meeting at the SEC, attended by Chair White herself, to discuss the need for Venture Exchanges to create liquidity for new types of securities. David Weild, former Vice Chair of Nasdaq, delivered a presentation on the compelling need for Venture Exchanges and how it should work. OTC Markets is currently positioning its platform to provide liquidity for crowdfunded securities as well.
Cuban stated that during the tech bubble that “They may have been horrible companies, but being public meant that investors had liquidity to sell their stocks.” While he may be accurate he is missing the point. The number of IPOs has been in decline due to excessive regulations and systemic hurdles that have pushed companies to remain private as long as possible. The challenge is creating a viable path to generate both access to capital for small companies, the vital engine of economic growth, AND a mechanism to create liquidity for investors. Perhaps Cuban should land his GV in Pittsburgh, instead of flying over it, and see what the entrepreneurs there believe?