Investing in a start-up is no longer a game of having the right connections. Just a short ten years ago, you had to have an “in” with a lawyer, an accountant, or a friend of a friend who’d give you a referral to a promising tech start-up looking to raise money. Or they would invite you to be part of a select few to invest with them.
Participating in the most exciting part of entrepreneurial efforts had a second barrier to entry: You needed a lot of money, in many cases at least $50,000. And many start-ups coming your way were based far away and hard to get a good handle on. That traditional scenario left a lot of interested angel investors sitting on the sidelines.
Fast forward to early 2012, and we’re looking at a different world. Even Washington is taking note how crowdfunding can light much-needed entrepreneurial fire under the lukewarm U.S. economy. The Entrepreneur Access to Capital Act, recently approved by the House of Representatives, for the first time recognizes microlending to start-ups as an integral part of future growth.
The debate over the measure’s merits and risks may be ongoing, but microfunding done right is anything but uncharted territory where investors have to worry about placing risky bets on opaque start-ups. Quite the opposite is true, as investment sites like MicroVentures demonstrate.
Thanks to such pioneering crowdfunding sites, it has become a lot easier to be an angel investor with anywhere from $1,000 to $20,000 at their disposal. MicroVentures vets all companies with a thorough and complete due diligence process. It then provides additional documents so investors can conduct their own due diligence to make the final decision.
That way, even small investors are able to focus on high-growth companies, particularly those in the high-tech space, that offer a large upside, rather than the mom-and-pop stores that have traditionally been associated with micro-lending.
MicroVentures founder Bill Clark argues that crowdfunding for entrepreneurs and their ideas for hot new technologies can be done right — if one focuses on three key pieces:
1) Access to good deal flow to identify potential winners.
2) The ability to invest in multiple deals to gain experience.
3) The tools and skills to filter out those companies and founders who will succeed.
Clark faced all three hurdles as an investor himself and turned adversity into an advantage when he founded MicroVentures. Like many others interested in angel investments, Clark wanted to invest smaller sums in more companies, allowing him to spread out his risk and increase his chances of picking a winner. What’s more, he wanted access to high-growth candidates beyond his hometown of Austin, Texas.
The quick uptake of his venture seems to prove him right. Since launching MicroVentures a year ago, more than 2,000 investors have joined. “MicroVentures helps investors learn about companies they may never have heard of, and to invest smaller sums in them, “ he says. “It’s a long overdue break with investment traditions where the small guys get access — and can prime the pumps of innovation for the whole country.”
When you sign up to be an investor be sure to put “VentureBeat” in the referral code and MicroVentures will send you a $100 gift card after you make your first investment.
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