Investments

How Crowdfunding Is Becoming Regular Investing

A decade ago, an entrepreneur wanting to raise cash pretty much had to have rich relatives or pals, or gain entry into the clubby world of venture capital. Sure, that entrepreneur could take it to the web, asking people to make their own relatively small investments, but that was considered less than respectable – the digital version, perhaps, of panhandling.

My, how much has changed since 2009. Now crowdsourcing is not only the hip way to raise money, but is pretty much expected to be part of the overall fundraising process. And one person who has helped in that shift is Jeff Kelisky, CEO of Seedrs, a crowdsourcing platform where new businesses seek and raise cash. Karen Webster from PYMNTS recently caught up with him to review the past decade of innovation – and to look into where investing and FinTech are headed in the new decade that’s about to start.

“It came together because, at heart, I am sort of a nerd,” Kelisky said, describing the journey that led him to Seedrs. “I would be coding to 3 a.m. in the morning on my IBM PC when that was a thing.” Indeed, his path led him from IBM to consulting to Microsoft before he spent nearly three years getting Seedrs in shape to launch – a period of time largely spent checking off regulatory boxes, and a lesson for other entrepreneurs seeking to make a splash in FinTech and other highly regulated industries.

Confusion and Anxiety

But that’s just part of being an entrepreneur. So is the ability to have a sharp vision when others don’t – almost like an artist, in fact. “Uncertainty breeds entrepreneurship,” Kelisky told Webster. “The people who rise from that confusion and anxiety are the ones who are the entrepreneurs. They are the ones who spot the patterns.”

If so, this must be a hot time for entrepreneurship, given such uncertainly as Brexit (Seedrs is based in the U.K.), trade wars and global political realignment – to say nothing of all the disruption in tech, payments and financial services (thanks to PSD2 and other regulatory efforts). As all that happens, digital technology and the crowdsourcing it engenders are changing the way businesses raise capital and build customer bases.

Now, the guy who created code at those ungodly hours is helping entrepreneurs raise capital in amounts ranging from about 50,000 euros to five million euros.

That doesn’t mean such businesses rely on crowdsourced funding, however – at least 177 have used Seedrs to raise capital. According to Kelisky, 62 percent of the businesses served by Seedrs also have institutional backing – a data point that underscores not only how respectable this digital fundraising model has become, but also how vital and even expected. “Without VC, (capital) used to be called dumb money,” he said. “That’s not the case anymore. We are just part of the ecosystem.”

Seedrs is not a venture capital operation – it’s not the job of the company to judge the business model or the chops of the prospective entrepreneur, Kelisky said. The company’s responsibility, at least in general, is to ensure accuracy and maintain its credibility. “(Entrepreneurs) need to prove their facts to us,” he told Webster, adding that the company determines not only if the business can be successful, but also if it can appeal to the Seedrs audience.

“About 80 percent will not make it past that first stage,” he said when asked about the vetting process. “Three to 5 percent of everything we see will make it live.” Of that portion, 70 percent will be successful, he said. And for those businesses seeking more money – eight million euros or more – a prospectus is required, he said.

Most of the pitches on Seedrs involve B2C businesses, though some 40 percent are B2B. Companies on the Seedrs platform span some 17 business sectors, Kelisky said, with no single sector accounting for more than 12 percent of the total.

It’s not only investment opportunities that Seedrs provides. “In a way, we are a testbed for ideas that are very early,” Kelisky said. “In many ways, we are a leading indication.”

What’s Next? 

So, what’s coming down the pike, and what will become of this type of crowdsourcing in the 2020s?

Well, for one, don’t get too used to the terms “crowdsourcing” or its variants, warned Kelisky. “Crowdfunding will just be investing,” he said. “And you can really see this going beyond crowdfunding.” Indeed, he talks about a digital marketplace, telling Webster that in 2017, the company got involved in trading via the secondary market. More broadly, he anticipates the new decade will bring more tech integration for ecosystems, either via open or evolving standards.

No matter what, the entrepreneurs will be here, seeking clarity amid all the confusion. Asked to give advice to the people following his same rough path, Kelisky hesitated before finding the right words. First, the entrepreneur needs to understand the architecture of the idea – not necessarily the technological infrastructure, but how the idea can scale. Second, he offered advice that any good parent would give: always persevere. “It’s important that they not quit,” he told Webster.

No doubt that was one of those things going through his mind during all of those late-night coding sessions way back when.

——————————–

Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. In the November 2019 AML/KYC Report, Zillow’s Justin Farris tells PYMNTS how the platform incorporates stringent authentication without making the onboarding and buying experiences too complex.

TRENDING RIGHT NOW