Fund Wisdom tries to make sense of emerging business of equity crowdfunding

Data from Fund Wisdom about the cities where startups have been most successful in raising money using web-based platforms like AngelList and Crowdfunder.
Data from Fund Wisdom about the cities where startups have been most successful in raising money using web-based platforms like AngelList and Crowdfunder.

Brian Thopsey acknowledges that when it comes to online equity investing — investors backing startups through sites like AngelList and Crowdfunder — the data are still messy. And we haven’t yet see the floodgates open, with Regular Joes putting a few grand here and there into fledgling businesses in exchange for shares of stock. That, Thopsey says, won’t happen until early 2016. But he’s already working to build a company, Fund Wisdom, that will gather data about what’s happening on these new sites.

Most of what we’ve been seeing so far, Thopsey says, is “accredited investors” with pretty high net worths, sometimes called angels, using sites like AngelList to find promising investments. But new rules being formulated by the Securities and Exchange Commission, and being rolled out by the Massachusetts secretary of state, will make it possible for more people to buy stakes of private companies.

brian_thopsey_whitebgFund Wisdom wants to track those investments as they begin to happen, and provide guidance to entrepreneurs and investors about the best places to get deals done. So far, they’ve been gathering data about what has been transpiring on sites that today target accredited investors. But most of the sites, Thopsey says, will open up to nonaccredited investors as that becomes legal. At WeFunder, a site founded in Boston but now based in San Francisco, CEO Nick Tommarello says they’ve raised just over $6 million for startups so far. Tommarello says he’s currently “looking for the poster child” company in Massachusetts to take advantage of the recent changes in state regulations, which say that non-accredited investors here can put money into Massachusetts-based companies (with limits.)

“A huge percentage of what we’ve been seeing happen online is seed-stage funding,” Thopsey says, “but you’re also starting to see people test this out in later-stage rounds,” as when Life360, maker of a messaging and location-sharing app for families, raised one percent of a $50 million C round using AngelList in 2014.

Of course, there are big questions about what will happen once less-experienced investors suddenly start putting money into private companies. “There’s a lot of press around the big home runs,” Thopsey says, “and that blinds people to the difficulty of getting businesses off the ground. Angel investors understand that a large majority [of startups] are going to be failures, so they’re walking in with expectations set. I don’t know that the entire population has that same understanding.”

Here’s some of Fund Wisdom’s 2014 data about most active sectors for online equity funding; the most active platforms; and the cities with the most successful online deals happening.

Scott Kirsner writes the Innovation Economy column every Sunday in the Boston Globe, in which he tracks entrepreneurship, investment, and big company activities around New England.
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