Asseta, AngelList, and crowd-funding

by Jamie Flinchbaugh on 10-28-13

A lot has been written on crowdfunding and the rules changes that have come as a result of the JOBS Act. I think I’ve met more people who have written about it than have actually utilized it.

Instead of reading about it, I wanted to actually participate as the best way to learn. I have been a member of AngelList for a while, which now has new abilities to connect investors to companies. There are many different forums for startups raising money, and I wouldn’t be surprised to see billboards around the corner, but AngelList is the clear market leader in this space. AngelList connects startups with investors, both companies and angels, although mostly the latter. Most of the angels on the site are former (or current) founders themselves, many of whom are notable, including Kevin Rose (founder of Digg), Steve Case (founder of AOL), and Brad Feld (Managing Director at Foundry Group and frequent blogger and author).

Logo asseta squareThe first investment I’ve made through AngelList, actually much sooner than I thought I would, is Asseta. Asseta’s description is the most transparent platform ever for buying, selling, and managing equipment. Said another way, it’s eBay for equipment.

The Asseta team are taking on an industry in desperate need of a clean, transparent, professional solution. Given how rapidly some markets shift, the need to buy capital equipment cheaply or find a new home for it early is going to be increasing. This team is a great balance of skills with enough depth of exposure to the field to really understand what’s going to work. Finally, they have gotten immediate traction with their solution. I’m certainly close enough to the manufacturing industry to see the need for this solution. And given the fact that they are YCombinator graduates, they have a access to connections for team building and fundraising that many companies do not.

AngelList also has developed a very interesting featured of Syndicates. When another investor sets up a syndicate, you can participate in their investments. You gain the benefit of tagging along on someone else’s judgement, due diligence, and terms. Because several investors are pooled, you can also invest a smaller minimum, if that’s what you desired, than if investing directly. It ends up working quite a bit like investing in a fund, without the management fees, but you do pay a carry on your investment to the syndicate leader. The amount of the carry varies greatly, from the “sure, come along for the ride” to the greedy. As a learning experiment, I’m in the process of investing in my first syndicated investment.

One of the benefits of these new rules is that it is unlikely I would have found either of these specific investment opportunities without them. It doesn’t mean they would have been closed to me, just that geographic and bandwidth would have made it very unlikely. Of course, there is no lock that these investments were better opportunities that those already available to me. That is why I draw one of my current assessments, that these new rules are not really the game-changer that they are made out to be.

I shared some of my thoughts on crowd-funding when interviewed by Morning Call in this article. The bigger concern is opening up investments to anyone. I understand the reasons to make alternative investments more open, because everyone should be able to benefit. But, the reason for the rules are not that accredited investors are better at making decisions about investments, but only that when these highly risky investments don’t turn out, it doesn’t destroy the investor financially.

Occasionally, the financial rules change to make things more open and more flexible. Many of these rule changes have been blamed for the banking crisis of the last 5 years. Earlier rule changes are what allowed everyday investors to participate in the stock market. Only time will tell whether these rules changes will turn out to be long-term benefits or end in crisis.

How have these rule changes affected you? Do you think they are beneficial or trouble?