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How do venture capitalists feel about following a crowdfunding capital raise?

This was one of the primary subjects for discussion at Venture Forward 2012 (ventureforwardconference.com). The answer to that question at the pre-conference speaker’s dinner implied unanimous agreement (from a group consisting of many of the top angels, VCs, lawyers, and pundits in the industry), that “direct, equity-based, common stock crowd funding as envisioned by the JOBS Act” would absolutely, positively preclude future investment by any serious professional investor, either angel or VC.

That said, the two workable options that were discussed would be either (1) provide some means for blowing up a crowd funded cap structure and making all those individual, unaccredited investors disappear prior to the VC investment (such as by buying them out, or rounding them up into a single vehicle with a professional manager), or (2) do the crowd fund raise from the beginning using a vehicle such as either a revenue-based note with a multiple return kicker, or a single-holder Special Purpose Vehicle managed by a professional.

But I’m sure there will be many, many stories of all kinds once the final provisions go into effect in January, and it will take quite a while for this all to shake out.

*original post can be found on Quora @ : http://www.quora.com/David-S-Rose/answers *

Written by David S. Rose

user David S. Rose Founder and CEO,
Gust

David has been described as "the Father of Angel Investing in New York" by Crain's New York Business, & a "world conquering entrepreneur" by BusinessWeek. He is a serial entrepreneur & Inc 500 CEO who chairs New York Angels, one of the most active angel investment groups. David is also CEO of Gust.

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Comments

4 thoughts on “How do venture capitalists feel about following a crowdfunding capital raise?”

  1. Andries Smit says:

    Makes perfect sense. Especially if you consider crowdfunding to be a way of “market validation”

  2. José A says:

    The SPV sounds like the most viable option at this point, but the results of the discussion are hardly surprising. Doesn’t mean crowdfunding won’t be transformative in a lot of areas where angels/VCs don’t operate, but it’s an open question in the traditional tech space.

  3. Dave says:

    The VC industry is drying up, save for a few superstar funds. I doubt a majority of funds will tell their investors they passed up a good investment because it was messy, especially as more and more startups turn to crowdfunding.

  4. Maria Dorfner says:

    Good to know.