Emerging 'crowdfunding' trend could eclipse venture capital
Fred Wilson, managing partner for Union Square Ventures, says crowdfunding could prove problematic for VCs.
Will venture capitalists like Fred Wilson, the legendary VC who is managing partner of Union Square Ventures, wind up blogging and advising startups or even becoming an entrepreneur instead of helping to bankroll startups?
Wilson sounds like he’s definitely weighing his options as a result of the passage of the Jumpstart Our Business Startups Act, which he predicts will be great for entrepreneurs looking to raise cash through crowdfunding platforms but problematic for a VC industry that is already struggling to make returns.
“The best option is to be an entrepreneur,” Wilson said during a breakfast series hosted by growth consultancy firm co: collective at the new collaborative workspace startup Grind in New York City Tuesday morning. “Venture capital is becoming a bad business.”
The JOBS Act, which will let individual investors invest in startups, will result in what he predicts will be $300 billion being funneled toward entrepreneurs after markets begin to crop up by the end of the year. (Wilson’s $300 billion estimate is based on families and individuals investing 1 percent of their assets in crowdfunding—which he thinks will become a popular investment strategy for everyday people.)
The return on investment for these rookie investors “will be as bad as in the venture capital world, but that doesn’t mean that people won’t do it,” Wilson said.
About $30 billion comes into venture capital firms annually from banks and large institutional investors that have routinely invested 4 percent in VCs each year over the past two decades despite the fact that the VC market has, Wilson says, underperformed as compared to the stock market during that time. Only about half of that money actually ends up amounting to anything, with the rest vaporized in bad investments.
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