ExitEvent news: New opportunities for seed, early stage VC funds
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Editor's note: ExitEvent and WRALTechWire will be cooperating in presenting news about the region's entrepreneurial sector. Today, Groundwork Labs Mentor and Investor Bill Bing reviews new opportunities for seed and early stage venture funds.
RALEIGH, N.C. - In a December post, I discussed the impact of the changes to Reg D 506c on regional funds, investors and startups, and the rise of online fundraising sites like AngelList, FundersClub, Gust, Wefunder, Fundable, Seedrs, Dealroom, and hyperfund. In this post, I will examine new opportunities for seed and early stage venture fund managers and angel investors as a result of these changes, and then briefly look at what the changes might mean for entrepreneurs.
For Fund Managers:
If you can't beat ‘em, join ‘em: AngelList and other sites are still getting to critical mass, and that creates an opportunity for first mover advantage. Fund managers who decide to allocate some of their existing capital to investing through an online platform can form a syndicate and be one of only a dozen or so large and credible lead investors. The large size and investor-friendly terms of the syndicate (as well as the dearth of current competition) create an opportunity to become entrenched as one of the big, early players on an online platform, enabling the fund to attract third party angel investors as syndicate members (yielding additional carried interest for the fund managers). Over time, and provided the platform continues to grow, this status could be increasingly significant.
A variation on join ‘em: If current or would-be fund managers don't have an active fund, they can raise capital from investors for the express purpose of creating an online platform investment syndicate. A fund of say $5 million with a strategy of investing in deals alongside high-profile online investors like Foundry Group, Kevin Rose, Naval Ravikant or Jason Calacanis can be a fairly attractive opportunity for prospective fund investors. Though a lower management fee (maybe 0-1% instead of 2%) and carried interest (maybe 5-10% rather than 20%) is expected, the fund manager also receives an additional 5% to 20% carried interest from any third party investors who decide to join the online investment syndicate. That makes it a pretty compelling alternative to option 1.
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