Venture capitalists and angel investors combined invest around $55 billion a year – not a large amount of money if you compare it with the capital deployed by finance and insurance companies, also known as Wall Street, which reached $1.2 trillion last year (8 percent of GDP).
Venture capital investors and angels are also looking for up to 40 times return to make up for their prior losses, which means that they target businesses with a clear exit strategy. Such pearls occur almost solely in high tech. As a result, retail industries or social care, for example, have been largely overlooked.
It has also brought a notorious gender cap when women-owned businesses receive only 1 percent of VC capital: Most female entrepreneurs start companies outside of the high-tech realm. The good news is that, to date, more than 60 percent of crowdfunded businesses have been started by women. This clearly indicates that the crowdfunding model has great potential to spread capital across a much wider scope of industries. Do we need another Twitter, people?
Many of us locked in on a belief that new investors will seek pure financial returns and need a “portfolio approach.” But what does the crowd really want? Social causes were the most popular crowdfunded category in 2012. The amount of charitable donations in the United States, reaching $300 billion annually, is 10 times bigger than VC investments. Europe, where equity crowdfunding is legal, reports the most traction for social enterprises.
Imagine the world where funding decisions would be voted by the wallets of the crowd. My belief is that crowdinvesting has substantial promise to become that exact impact investment we’ve been all craving for. Let’s give it a try.
Victoria Silchenko is the founder of Metropole Capital Group in Century City and the organizer of the 2nd Annual Next Generation Entrepreneurship and Global Crowdfunding Forum in Santa Monica on Nov. 15.