You might think that VC firms in Silicon Valley had all the leads on the next big thing they needed. You’d be wrong, which explains why new crowdfunding outfit Funders Club just raised $6 million from a gang of expert early-stage investors, including First Round Capital, Felicis Ventures, Spark Capital, Digital Garage, Intel Capital, and Y Combinator-affiliated funds (Andreessen Horowitz, Start Fund, SV Angel, and General Catalyst Partners), along with a handful of angel investors.To set itself apart from all the other crowdfunding sites starting to crowd the market in anticipation of the JOBS Act kicking in, Funders Club is going for simplicity. “Our philosophy is that it should be as easy to invest in private companies as it is to invest on E-Trade for public companies,” says co-founder Alex Mittal, who started the crowdfunding platform five months ago.
Funders Club does all the due diligence on the companies, pre-screening startups to help ensure the startup is credible. There are no fees to join the site, but investors have a minimum investment of $1,000 to $5,000 per fund and do pay for accounting, state entity, and filing fees. Funders Club is considering taking carried interest, or a cut of the money returned when a company exits, says Mittal.Unlike other crowdfunding sites for accredited investors (in general terms, those with a liquid net worth of $1 million-plus), Funders Club investors aren’t putting money in a specific company in exchange for equity. Instead, investors are putting their money into a fund created by Funders Club that backs one to two companies. The angel becomes a limited partner in that fund, and gets a return if those companies get acquired or go public. That lowers the individual amounts that investors put out, says Mittal. Where one angel might invest $25,000 in one company, hundreds of individual investors in Funders Club might cut a $2,500 check. Mittal says that in the future, Funders Club might offer funds that go after a specific theme, such as mobile or cloud companies.
In anticipation of the SEC making regulatory changes to reflect the JOBS Act, Funders Club’s model is a first step towards allowing anyone to invest in a company they feel is worthy of their money. Clearly, some very savvy Silicon Valley VCs think Funders Club is worth $6 million of their money. Whether a big enough flock of amateur angel investors agree, a necessity if Funders Club is to put the “crowd” in crowdfunding, remains to be seen.Posted from: http://www.wired.com/business/2012/10/funders-club/