On today’s Business Beat, Jeff Sloan explains why equity crowdfunding could level the playing field for diverse startup founders.
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Good morning, Paul! As we know, startup funding has an undeniably key component that must be present in order to achieve a vibrant and productive startup ecosystem in which the visions of founders are backed by funding by those who believe in and have the resources to invest in those startups. Now the funding life cycle is critical at various levels.
Angel funding, that is funding from wealthy individuals, is the most critical type of funding at the seed stage of a startup. Then there’s venture capital funding, that’s growth type capital, and those funds are managed by skilled fund managers who raise, invest and manage the investments on behalf of wealthy individuals, family, offices and institutions who invest in and entrust those fund managers with their funding. And then of course, for the startups who get far enough along, commercial loans become an option.
However, there’s a type of funding that I believe is just a game changer and that is equity crowdfunding. Now the door swung open to this type of funding just a few short years ago. Equity crowdfunding lets startups and private businesses raise capital directly from the crowd, that is individual investors. It allows everyday people to invest in startup companies for as little as $100. Now everyone can be an investor, not just venture capitalists and private equity firms. And this has a much-needed democratizing effect on startup funding. You see, for example, in 2020 Black and Latinx founders received only roughly 3% of the total funding from venture capitalists that went to all founders.
However, equity crowdfunding could be a factor in leveling the playing field since individual investors can select which startups he or she wants to invest in based on whatever criteria he or she chooses, including say, for example, companies owned by females or companies owned by Black founders. And this is how equity crowdfunding could impact the total funding going to startup companies and level the playing field for all.
And, of course, having a diverse set of founders, starting and operating startup companies in our region and others, is something we all support and applaud.
I’m Jeff Sloan, founder and CEO of startupnation.com, and that’s today’s Business Beat on the Great Voice of the Great Lakes, WJR.