While venture capital funds innovation, the venture capital industry itself is not particularly innovative.
That’s why it’s a bit of a surprise that The National Venture Capital Association has admitted the FundersClub, a well-hyped, online-only funding network, into its ranks.
The NVCA is the preeminent trade association of the venture capital community. It has over 400 members, joined by their commitment to “funding America’s most innovative entrepreneurs,” and it lobbies for public policies that benefit emerging growth companies. Membership is by invitation and only offered to professional and corporate venture outlets.
FundersClub is the first and only online platform to be be granted membership in the NVCA so far. This Y Combinator-backed startup has generated a significant amount of buzz this year for its innovative approach to investment.
“We have always said that we are a venture capital group and consider ourselves part of the venture capital community, but this is the first time someone other than ourselves and our backers is saying that,” said founder and CEO Alex Mittal in an interview with VentureBeat. “This is legitimizing for us, but it is also a sign of the times that transcends FundersClub. It shows how venture capital is opening up to innovation and to the transformational possibility of the Internet reaching this industry.”
Traditionally, venture capital deals happen offline. SEC regulations make setting up a legal online venture capital platform difficult because private companies cannot publicly solicit investment. Furthermore, investors are wary about putting their money into platforms or companies they do not trust.
FundersClub is a network that provides accredited investors with access to pre-vetted startups. These companies are featured on the FundersClub site, and many are fellow Y Combinator participants. Investors from around the world may invest amounts as small as $1,000 until a company reaches its goal. At this point, all the investments are consolidated and given to the startup as one investment from FundersClub.
The venture capital world is one where “who you know” matters and personal introductions are important. It can be challenging for investors and startups alike to break into unless they have a strong network of connections. Startups, of course, want access to a pool of accredited investors because they want money, and on the flip side, investors want access to promising business opportunities. Finding and vetting companies takes time, and not all investors are able to properly go through the due due diligence process. FundersClub adds value by connecting both sides of the marketplace.
Since launching in July, it has raised (and invested) over $16.5 million for startups. The FundersClub portfolio includes Coinbase, Sponsorfied, Tracks.by and Virool, and in a philosophically-confusing twist, itself. The company raised $6 million in October which at the time was the largest ever seed round raised by a YC company. The investors included an impressive roster of big names in venture capital, including First Round Capital, Y Combinator, Draper Associates, Felicis Ventures, Spark Capital, Digital Garage, Intel Capital, and Start Fund. Read more on VentureBeat.