How does equity crowdfunding co-exist with business angel networks and seed investment clubs? Does it enable networks to attract new members, or, on the contrary, does it lure existing members away from the networks? Numbers from France Angels, the French Federation of business angels, seem to indicate that the latter is the case: According to the Federation, business angel investment has shrunk by 18% in the past two years.
Launched in 2014, Sowefund proposes to business angel networks an “If you can’t beat them, join them” approach. On this equity crowdfunding platform, crowdfunders can coinvest in deals selected by business angel networks or venture capitalists.
Recently I spoke with Georges Viglietti, Sowefund’s co-founder and president to learn about their platforms approach and their vision of the future of investing.
Therese : Why did you create Sowefund?
Georges: Both my co-founder and COO, Benjamin Wattinne and I were working for business angel networks when equity crowdfunding started to emerge. I was the General Manager of Paris Business Angels, one of the most active business angel networks in Europe. Before that, I worked for the French business angel network federation France Angels. Benjamin was head of business development for Europe for Gust, the SaaS deal flow and investment management platform for business angel networks and venture capital funds. Thus, we knew the sector inside out.
When the first equity platforms, such as WiSeed, started to appear in France, we were at first dumbfounded, if not upset. “Who are these people? How could “the crowd” make meaningful decisions on early stage investments? How can these online platforms justify such high commissions, in the 10% range?” These were some of our interrogations. In addition, some of the first businesses raising funds on equity crowdfunding platforms were businesses we knew our angel networks had turned down after careful scrutiny. We were therefore highly skeptical.
Later, equity platforms started approaching us, looking to work with our networks.
But the networks feared that equity platforms would snatch their members and, most importantly, capture their fees. In short, we could not find a way to cooperate with the then existing equity platforms.
In 2013, we could see that equity crowdfunding was here to stay. Thus, we decided to take the bull by the horns and design a platform to foster the cooperation between angels and crowdfunding investors. We created Sowefund, an equity crowdfunding platform dedicated to co-investing between angel networks and crowdfunding investors. The success of Syndicate Room in the UK comforted us in our approach. We officially launched in September 2014
Therese : How does co-investing through Sowefund work? What’s in it for angel networks, and what’s in it for the crowdfunding platform?
Georges: As a co-investing crowdfunding platform, Sowefund can bring to angel networks additional funds. Business angel networks of 50 to 150 members have a strong capacity in terms of due diligence. Being experienced businessmen and investors, business angels know many industry sectors. We are currently partnering with half a dozen angel networks. Some are generalists, some specialists, for example in IT or pharmaceuticals, and others are regional networks. They understand the management and financial challenges of early stage businesses. They can quite quickly analyze their business plans and gauge their founding teams.
But their vetting capacity can be stronger and faster than their investment capacity. In 90% of the case, business angel networks could use 20% additional funds or more to close the deal faster. By letting crowdfunding investors co-invest next to them, networks can accelerate closings and do more deals. That’s what we enable them to do.
An equity crowdfunding platform, on the other hand, can collect growing amounts of money relatively fast. But its risk analyst staff is small and limits its vetting capacity. Having experienced angel investors on its side is a big help. It also increases the investors’ confidence.
This does not mean that we blindly take in every fundraiser selected by our partner networks. We are registered as “Conseiller en Investissements Participatifs” (Equity Crowdfunding Advisor) which means that we do our own due diligence. We also actively support the entrepreneurs we choose. We coach them and give them the tools they need to present their project to crowdfunding investors, such as video tools.
Our strength lies in our highly customized approach, which comes from our business angel experience. I do not believe in fully automated equity platforms. Entrepreneurs need strong and individualized support.
Therese : How do you see business angel networks coexisting with crowdfunding in the future?
Georges: Once business angel networks understand the virtues of cooperating with a crowdfunding platform like ours and once they know that we do not take a commission on the funds they raise, but only on the funds we collect, they’re quite willing to share their investment opportunities with us.
It’s only the beginning of the story, though. It still is unclear whether crowdinvesting is creating new generations of investors who will later grow the ranks of business angel networks, or whether, on the contrary, it is progressively emptying them. Clearly, small investors who are currently investing € 2,000 on crowdfunding platforms could be investing ten times more in 5 to 6 years from now and potentially join business angels networks later on if they want to get involved in the due diligence process.
On the other hand, equity crowdfunding does not come cheap. We create expensive special purpose vehicles for each deal that cannot be justified for funding under €200,000. Truly democratizing equity crowdfunding requires a nudge of external funding, such as the £40 million the UK government fund lent to Funding Circle.
Angel networks have been very slow to understand that crowdfunding was competing with them, and therefore, slow to react. Thus, I guess the jury is still out on whether angel networks will grow again. In the meantime our proposition to them can be summarized as “If you can’t beat them, join them” and let crowdfunding investors in on your projects through Sowefund.
Therese Torris is an entrepreneur and consultant in eFinance and eCommerce based in Paris. She has covered crowdfunding and P2P lending since the early days when Zopa was created in the United Kingdom. She was a director of research and consulting at Gartner Group Europe, Senior VP at Forrester Research and Content VP at Twenga. She publishes a French personal finance blog, Le Blog Finance Pratique and curates crowdfunding news on Scoop.It.