Startup Secrets and Sh#$ to Know: Crowd Funding
Aleckson Nyamwaya has his beat on the pulse of the startup world in MN. He is an Associate at @gener8tor, contributor for @startupgrind, ambassador for @1millioncupsspl and a lover of all things tech & startups. We are pleased to have his monthly insight with our blog “Startup Secrets and Sh#$ to Know.” Check back each month for his thoughts, observations and featured companies.
How Equity Crowd Funding Is Going To Change The Minnesota Startup Eco-system
“97% of Americans couldn’t invest in early-stage startups, due to the SEC’s regulation on early stage finance.”
Early stage investing used to be reserved only for accredited investors. That is, individuals who have a net worth of $1M, or have an annual income of $200,000. That all changed in June of 2015, when MNVest went into effect. MNVest is a law that allows the average Minnesotan, regardless of their income, net worth or socioeconomic status to invest in early stage startups in exchange for equity. Read more about the MN Vest law here.
This is wonderful news for the Minnesota startup ecosystem because it gives us a fair shot at becoming industry leaders, in solving tough problems that affect the whole of humanity such as space travel, famine and climate change – just to name a few. This has been made possible due to two side effects of equity crowd funding. The first being a vastly diverse pool of investors and second, a low barrier of entry to starting a business.
“The problem lies within who is giving the money, and who is receiving the money”
Diversity of investor pool 🏊🏼
Diversity in startup financing is broken. The problem lies with who is giving the money, and who is receiving the money.
- 97% of VC backed founders are male
- 87% of VC backed founders are white
- 76% of venture capitalists are white males
- 7% of partners at venture firms are women
This lack of diversity in investment has measurable economic effects. Mickinsey & Company reports that “companies with more diverse workforces perform better financially.” Social effects cannot be ignored either. 43% of venture-backed startups are in the software industry with biotech following in at just 12.6 %. This is not representative of the problems humans face across the globe. Crowd funding utilizes this potential that otherwise would have been wasted.
Low barrier to starting a business🔐
Crowd funding also lowers the barrier of entry to starting financially. It makes it a great way to raise a pre-seed/seed capital for people such as myself, who may not necessarily have that “friends and family” network. It also serves as a great platform to launch and finance your MVP, all while getting valuable feedback from customers. Small scale & less venture back-able initiatives also benefit from crowd funding in that they now have an alternative to the usual funding sources such as VCs, banks or angels.
I’m excited to see where this crowd funding journey leads us as a community. Hopefully we will see a rise of startups that tackle more challenging problems due to a more diverse set of investors and underrepresented groups getting access to capital.