Interest in crowdfunding from traditional finance players like private equity’s Bain Capital is growing, even though skeptics have downplayed crowdfunding in serious corporate finance.
RockThePost, a crowdfunding platform that seeks money for startups, holds monthly "Demo Days," where startups pitch ideas to wealthy investors, angel investors, family office investors and institutional investors.
The latest Demo Day hosted pitches from five companies seeking crowdfunding. Representatives of Bain Capital, along with venture capital firms like Emerald Stage2 Ventures and Fresh Track Capital, attended.
Companies selected to pitch include those that are trending on RockThePost’s crowdfunding platform, which has raised $23.5 million for its startups since its March 2013 launch. Each startup has ten minutes to make its case before investors rate them publicly and later send feedback.
On Tuesday evening, the most recent Demo Day, one startup pitched creating digital marketplace for green construction products, and another pitched a cloud computing service for K-12 educational tests and quizzes. More than 200 investors attended the latest demo, according to RockThePost CEO Alejandro Cremades.
He told IBTimes that without the platform he provides, “It would’ve taken these people at least two years to make the right introductions. So it’s very powerful for the startup. But it’s also very powerful for the investor … At the end of the session, we actually showcase the voting from all investors that have participated, to gauge their interest.”
Bain Capital didn’t return a request for comment. The firm has a venture capital arm that manages $2 billion and a managed portfolio of 65 companies.
Still, many are skeptical of crowdfunding as an effective financing tool. They argue that regulatory burdens, like a $1 million fundraising cap and audit requirements, undermine its appeal. It’s unclear when, if, or how institutional investors and Wall Street firms will take a serious interest in crowdfunding.
The Securities and Exchange Commission (SEC) is expected to finalize rules legalizing equity crowdfunding later in 2014. That would allow people who earn less than $200,000 to invest up to $2,000 annually in crowdfunded ventures.
Advocates say that crowdfunding democratizes investment and allows ordinary people to support worthwhile small businesses, overcoming outdated securities laws. The collective wisdom of the Internet will help prevent fraud, they say. Critics charge that crowdfunding will pair uneducated investors with risky startups, and it's well-known that the vast majority of startups fail.
Venture capital firms could also use crowdfunding rounds to vet startups. If a startup attracts significant crowdfunding, that indicates there's enough potential to merit venture capital attention, the reasoning goes. That could free up the time of venture and seed capitalists, separating the wheat from the chaff.
Here’s a full list of the companies that attended RockThePost’s most recent demo day. Previous demo days were attended by Charles River Ventures and Robin Hood Ventures. Investors with more than $10 billion in assets under management have attended in the past, according to Crowdfund Insider.
· Bain Capital
· Double Rock
· Sand Hill Angels
· Tie Angels
· Angel Investor Forum
· Mid-Atlantic Angel Group
· Arc Angel Fund
· Emerald Stage2 Ventures
· SK Telecom Ventures
· Mosley Ventures
· Initial Capital
· Investors Collaborative
· Volo Capital
· Baltic Nordic Venture Partners
· Diebold Ventures
· Emil Capital Partners
· Franck Invest
· Fresh Tracks Capital
· Frontier Equities VC
· Indian Angel Network
· KKR (KKR told IBTimes they didn’t attend. “There is some confusion because one of our employees is personally involved with a start-up company that attended,” a KKR spokeswoman said.)
· Luca Holdings
· Xaphan Group