Too much dumb money rushing into the angel investment game is inevitable with crowdsourcing, AngelList and other innovations. Innovation is welcome. Liquidity for startups is welcome. How much is too much?
Please share your thoughts.
I will kick this off with some of mine:
Here’s one article from Harvard Business Review on the subject: Can Crowdfunding Solve the Startup Capital Gap?
And an article about AngelList and its impact: AngelList, CapLinked, And Financing Marketplaces.
Both talk about the gaps in the pre-seed and seed capital markets. Not all of them have yet been filled. For example, I don’t see either AngelList or any of the Crowdfunding sites offering anything in the realm of dividend-based equity financing.
Most businesses will never really exit. Therefore, if they raise equity funding, the best way to return money to the investors is through dividends. Friends, family, extended family, extended friends circles – can participate in equity rounds, as long as the expectations are not out of whack.
If the mentality is “love to build something and be on the ground floor of a startup” – great!
If the mentality is “cobble something together and flip it” – that’s speculation, and it would be a disaster.