Crowdfunding and Angel Funding

If, or perhaps when, Congress passes one the pending crowdfunding bills, early-stage financing will likely make a rapid leap from the old world to the new. In the old world, both informal networks of angels (e.g. the PayPal Mafia) and formal networks of angels (e.g. Wildcat Angels, a group of Northwestern University alumni) relied on so-called accredited investors to support young businesses. Accredited investors are those who met certain requirements under SEC rules, namely the wealthy folks who can afford to lose gobs of money without the risk of being impoverished.

Attorney William Carlton refers to accredited investors as the 1%, but in the brave new world of crowdfunding, the 99% will suddenly have access to deals previously reserved for the angels. Can angels and crowdfunding sources co-exist?

CrowdFunds sees both funding sources working together.  However, a few obstacles must be cleared.  In particular, crowdfunds should be sourced in such a way as to anticipate the involvement from angels and/or venture capitalists. Otherwise, professional investors might avoid a deal in which potentially unfavorable terms have already been agreed upon–or for a host of other reasons.

Alternatively, a young company might consider crowdfunding as its solitary source of external capital until it reaches profitability or some other benchmark. Under this scenario, the young company might forecast the need for a half million dollars and plan on raising the entire amount without targeting professional investors.

Raising money via crowdfunding might even develop along two parallel paths: mouse-like sums intended to ripen a business for later investors or elephant-like sums  designed to sidestep the need for angels/vc altogether.  In any event, all eyes are now on keenly focused on Congress.

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