Even with popular platforms such as Kiva, Lending Club and Seedrs on the market, many funders are still using their own savings to make investments in startups, especially those that focus on emerging technologies. Now, a group of London startup advisers has developed what it describes as a “new kind of venture capital,” which uses crowdfunding to generate capital for early-stage startups.
The Techstars Seed Accelerator is the first angel syndicate-style fund to enter the marketplace, and it follows on the heels of A+E Networks raising $36 million in the same way. It all comes down to a problem that Angelica Liner, an investor at Techstars, has witnessed over the years: “Silicon Valley has tons of capital, so how do we get the next 15-year-old to set up their own fund and get their friends and family to invest?” she asks.
Liner adds that while traditional VCs invest in early-stage companies, they tend to offer two kinds of capital. On one hand, they’re looking for an initial infusion that will help them get the company up and running, and in turn they can make several follow-on investments and give returns to their investors. But, they usually ask for anywhere from $100,000 to $5 million for each of these investments, which is not an attractive prospect for a company that’s just getting started.
“They don’t actually go and meet these companies. They don’t go to the hacker scene and really have a good understanding of the value of the company,” Liner says. That’s why Seed Accelerator founders Warren Collis, David Croft and Robert Sanders are attempting to use the leverage of the crowdfunding economy to encourage Angelica Loiners of the world to pony up.
The Seed Accelerator will take a stake in selected startups as part of a nine-month program, with the goal of helping the companies find potential buyers and founders of their own. Seed Accelerator investors also get to get directly involved with the companies, attending events and sharing advice with the founders. While Seed Accelerator is focused on startups that are based in the U.K., it plans to expand globally in the coming months.
Collis says that one of the reasons for the Seed Accelerator’s U.K. focus is that it was more difficult to raise money for startups in the U.S. Unlike VCs, the startups that make it through the Seed Accelerator don’t require investors to wait a long time for returns; the money goes right out to investors once the companies are generating revenue. For instance, American industrial designer (and current Social Capital employee) David Mooney’s Netminder started selling cameras that let you track your personal data, and secured a $4 million investment from the accelerator. The three co-founders have since set up a division of the company in Singapore that will be selling cameras from $350 to $500, with sales starting this month.
So none of the start-ups being worked on will make something like the new casino 2020 list, but the targeted market is big-enough one which will also be challenging.
“A startup shouldn’t have to be bloodcurdlingly good,” says Collis. “It just needs to be an opportunity.”