User-friendly, accessible technology is making it easier than ever to found and invest in businesses. A recent report by the Kauffman Foundation, “Changing Capital: Emerging Trends in Entrepreneurial Finance”, details the shift from the traditional structure of venture capitalism to one which takes cues directly from the needs of consumers.
Through investor-entrepreneur matching sites like AngelList and online crowdfunding platforms such as Kickstarter, consumers participate directly in raising the human and financial capital necessary to make the concepts they like a reality. Startups detail the vision of their company or product online, and anyone can invest in exchange for a company share or completed early product model. This system allows people from diverse business backgrounds to join angel networks, and gives business owners higher chances of being selected for funding than they would have in a traditional VC marketplace.
By increasing startup visibility and easing the transfer of capital, crowdfunding and angel investment also create opportunities in new locations throughout the United States. Businesses which use online platforms tend to be less concentrated in the traditional American hubs of California and New York; Kickstarter projects are most frequent in these cities, but a large number of first-time-funded projects, approximately 23 percent of the total, are under way everywhere from Missouri to Texas. The research suggests that online communication makes it easier to found a company in unconventional locations, diversifying the entrepreneurial landscape.
The report also evidences that female entrepreneurs in particular experience a significant benefit from online investment. Approximately three times as many companies with a woman in executive leadership received crowdfunding compared to during traditional venture capital funding rounds. Women own 30 percent of the business ventures started on Indiegogo, which is a site for connecting startups with funding and potential customers. Since only 5 percent of successful VC-seeking teams contained at least one woman 20 years ago, technology has had a clear positive influence for female business owners.
According to the Kauffman research team, popular adoption of technology has increased access to capital in the United States for those who would not have received it in earlier decades.
Online fundraising has also lowered the total cost of participation for average citizens looking to invest. Further research may indicate whether online platforms have potential for closing other funding gaps. For example, small-to-medium-sized companies are often left out in an investment landscape that seeks either high-risk, high-potential startups or large-scale, guaranteed successes. Mid-size companies may be able to find more, smaller investments from non-traditional investors online. Stakeholders should keep note of how modern tools affect investment trends, as these tools may be key in both local and global economic uplift.
Contributed by Abigail Hintermeister.