You might assume that venture capital firms in Silicon Valley possess all the insights they need for the next big breakthrough. However, that’s not the case, which is why the new crowdfunding platform FundersClub has successfully secured $6 million from a team of seasoned early-stage investors. This group includes First Round Capital, Felicis Ventures, Spark Capital, Digital Garage, Intel Capital, along with a range of Y Combinator-associated funds such as Andreessen Horowitz, Start Fund, SV Angel, and General Catalyst Partners, in addition to several angel investors.
To differentiate itself from other emerging crowdfunding platforms preparing for the implementation of the JOBS Act, FundersClub emphasizes simplicity. "Our belief is that investing in private companies should be as straightforward as trading on E-Trade for public companies," states co-founder Alex Mittal, who launched the platform just five months ago.
Unlike traditional funding platforms for accredited investors (generally those with a liquid net worth exceeding $1 million), participants on FundersClub are not investing directly in a specific company for equity. Instead, they invest in a fund created by FundersClub that supports multiple startups. Participants become limited partners in the fund, earning returns if the supported companies are acquired or go public. This approach allows for lower individual investment amounts; for instance, while a single angel investor may contribute $25,000 to one company, numerous investors can each commit $2,500 through FundersClub. Mittal indicates that in the future, the platform might develop funds focused on specific sectors, like mobile or cloud technologies.
FundersClub conducts comprehensive due diligence on potential startups, pre-screening them to verify credibility, though investors are encouraged to perform their own assessments. Joining the platform is free, but the minimum investment per fund ranges from $1,000 to $5,000, and participants are responsible for various fees related to accounting, state entities, and filing. Additionally, FundersClub is contemplating introducing carried interest, allowing them a share of the returns when a company exits, as noted by Mittal.
With the SEC poised to make regulatory adjustments in line with the JOBS Act, FundersClub represents a significant move toward enabling broader public investment in promising companies. The fact that several astute Silicon Valley venture capitalists see the value in FundersClub’s $6 million funding indicates potential confidence in its model. However, whether a sufficient number of amateur angel investors will engage remains to be seen, which is essential for achieving the "crowd" in crowdfunding.