While crowdfunding doesn't yet allow the 99 percent to invest in companies directly--Kickstarter and Indiegogo supporters typically only contribute or buy a future product--FundersClub is prying open the door to allow more people into the VC game.
The goal of the venture capital platform is to facilitate financing in early-stage companies for small but accredited investors who wish to make low minimum investments. The start-ups, meanwhile, have a better chance of lining up funding than they would from family, banks or angel investors.
Since attracting $6.5 million in VC funding last summer to launch the platform, San Francisco-based FundersClub has helped place more than $2.5 million into nine companies, including Soldsie, a startup that lets merchants sell directly on Facebook; Tracks.by, a social promotion platform for musicians; and Sponsorified, which connects brands with sponsorship opportunities.
The FundersClub website handles all financial transactions and legal paperwork for both investors and startups. Here's how it works.
Members must be accredited investors who earn more than $200,000 a year or have a net worth of more than $1 million. "We scaled from nobody to 5,000 registered, accredited investors in just six months," claims CEO Alex Mittal.
FundersClub sets up various funds to support pre-approved startups. The investors can pick which funds they want to buy into, putting up as little as $1,000 in exchange for equity in the fund.
Mittal says investors tend to be highly connected individuals from the likes of Apple, Facebook, Goldman Sachs and McKinsey & Company, and they're expected to offer expertise and connections to the startups. "The doors they can open are very important," he says.
"We're not looking for ideas," Mittal explains. "Companies should have legs and show success in monthly revenue growth and adoption numbers. They need to have the right people who can handle the challenges a young company faces."
Mittal's investment committee vets each company before passing it along to FundersClub's "Angel Panel," a vetting group of members (typically people with expertise in a startup's technology or target market). If the panel gives the thumbs-up, the nascent company creates a detailed profile with video introductions of the team and its product/services and sets an investment goal; this is then shared and viewed by the larger FundersClub investment community.
Yun-Fang Juan, a former Facebook engineer, was one of 72 FundersClub investors who contributed to the $425,000 raised for Soldsie. Juan liked the team and the idea so much that she signed on as Soldsie's fifth employee. "She knows Facebook inside and out, so we immediately gained expertise we didn't have before," says Soldsie CEO Chris Bennett. "That was huge for us--as important to us as the money."