Back in 2009, venture capitalist and co-founder of Viaweb Paul Graham foresaw the bright future of startup funding, calling it “a huge, unexploited opportunity”. In concurrence with his prediction, USA today reported a jump of 57% in the US startup investing for the first quarter of 2014. A surge of this magnitude, 9.47 billion dollars to be exact, hasn’t occurred since 2001. Innovative technologies and a variety of other startup facilitating methods have triggered a new avalanche of investing in the startup market and this landslide has only started to rumble.
A key component of the new business explosion and capital raising methods are investment platforms. This new and advantageous opportunity makes it super-easy for any entrepreneur with a bright idea to share it with the world, test its strengths and weaknesses, gain supporters and seed capital. Investment platforms offer entrepreneurs a mini-version of the market full of angel-investors, believers in emerging business and its most dedicated fans. Having a killer dream, the accessibility to make it come true and real supporters on the pathway to success is a knockout combination. In addition to investment platforms, there are three other major factors sure to make startup investing the new black.
1. The Outburst of Leading Industries
IBISWorld ranks the top 10 fastest growing industries based on the annualized revenue growth over the past decade. Most of these industries have extended their physical and online presence to mobile phones making them accessible from nearly anywhere. Social network game development and online shoe sales are two industries scoring figures that show phenomenal expansion. Social network game development, for example, is expected to grow 16.9% per year until 2018 (credit: www.ibisworld.com). One of its key players, Zynga, a fast-paced growing social game publisher, helped transform an industry that barely existed ten years ago into a hyperactive and competitive game field. The online footwear industry scored a 14.5% growth in 2013 and is expected to increase steadily as more and more people are shopping for shoes online (courtesy of:www.forbes.com). Technology development and expansion are more than likely to continue fueling the growth of the industry, creating a welcoming territory for startup investing.
2. For Angel Investors, the Sky Will Soon be the Limit
Due in large part to new industry technologies facilitating startups and financing, the distribution of venture capitalists and angel investors is starting to balance out. Whether it’s equity crowdfunding platforms, referrals, or doing their own research, investors now have access to essential information on hot deals and opportunities never available before. As equity crowdfunding is about to come to light, both entrepreneurs and investors are getting ready to be matched. Equity crowdfunding sites will save the angel investors time, expand their reach and offer them quality deal flow. To minimize the loss risk, co-investment has become wide-spread amongst angel investors reaching its maximum peak in 2013 (as stated by the 2013 HALO Report). In the very near future, nearly anyone will be able to legitimately invest or co-invest in a startup.
3. A Title that Makes it All Possible
Recent changes in the Securities Regulations represent a significant factor behind the outburst of startups. In August 2012, the Securities and Exchange Commission (SEC) proposed a rule that would lift the ban on general solicitation and general advertising, thus facilitating the implementation of Title II of the JOBS Act one year later. Title II opened up a capital raising goldmine in the online environment as more and more business takes place on social media platforms.
A portion of the law still awaits full completion, Title III of the JOBS Act, which is the one we believe will have the strongest impact on emerging businesses. Once Title III is enacted, this last piece of the puzzle will break down the barriers between investors and entrepreneurs by allowing non-accredited individuals to partake in the crowdfunding process. These investors will be able to redirect a percentage of their revenues toward startups via funding portals for non-accredited investors, such as truCrowd. As we await this moment with excitement, we can only anticipate the magnitude of its effects on startups, investments and the economy as a whole.
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