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FundersClub fills void for start-up investors

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October 18-20, 2023 / Tucson, AZ
The annual summit for research institution gap fund and accelerator programs, including proof of concept programs, startup accelerators, and university venture funds

The Story

A fast-growing Indianapolis start-up called TinderBox is days away from securing its second investment from the nation’s first online venture capital fund, FundersClub.

Just like a year ago, when the sales and marketing software company became the first non-Silicon Valley start-up to raise funds through the site, the money fills a gap in a region lacking the venture capital resources of the West or East coasts.

With funds pooled from investors around the world, TinderBox will add staff and bolster its sales effort, with the goal of building a successful, sustainable business in its hometown.

TinderBox is helping to fulfill a mission set by FundersClub co-founders Alex Mittal and Boris Silver in 2011 — to harness the Internet to transform the way investing happens. The venture capital fund brings together start-ups and accredited investors from around the world to make new ideas and companies come to life.

Since late 2012, investors have put $12 million into 60 companies that have since raised $200 million collectively — much of it from prestigious national investors. In February, the company released its first prediction of return on investment for funders on the platform — 41.2%. FundersClub tops a recent ranking of venture firms with the most momentum (based on predictions) by the research organization Mattermark.

The figure is only a bet — just one company from the FundersClub portfolio has sold or filed an initial public offering. But Mittal believes his early results legitimize online venture capital for fundraising start-ups and demonstrate how wealthy individuals can realize the same returns as the most successful venture capitalists.

“We’re not trying to democratize access to start-up investing,” he says. “We’re trying to democratize access to investing in the highest-promise start-ups.”

FundersClub acts like a traditional venture capital fund in some ways, screening thousands of start-ups and funding 1.8% of applicants. But unlike that model, which requires funders to invest $50,000 to $250,000 in a deal, FundersClub allows investors to contribute as little as $2,500. And while traditional firms offer online tools to vet deals, they typically require in-person participation and paper documentation. FundersClub operates entirely online.

Sites like it are becoming more important in the start-up ecosystem. It’s cheaper and easier to build a technology company outside of Silicon Valley, but investors there and elsewhere have lacked good ways to find and vet start-ups far from home.

And a key challenge for any growing start-up is finding the cash to scale the business, especially in places such as Indianapolis, Albuquerque or even India without an abundance of capital. Fundraising takes months of time and meetings, and draws the CEO and top executives away from sales-making and business-building.

The opportunity to expand his network of investors beyond Indianapolis and quickly raise funds is what drew TinderBox President Dustin Sapp to the site last year. A surprising benefit, he said, was the new business, connections and advice he received from the FundersClub investors.

“We’ve received investments from relatively accomplished software executives from across the globe,” Sapp says. “That’s visibility we wouldn’t have had otherwise.”

FundersClub isn’t right for every investor. Mike Rothenberg of San Francisco-based Rothenberg Ventures, for instance, typically writes larger checks than those associated with FundersClub. North Carolina angel Mark Easley is a member, but prefers to build relationships with start-ups before writing a check. It’s hard to do that online.

But both believe in the site’s potential. Easley envisions a time when many more start-ups are listed, and he can use it to source local deals and invite his non-investor friends to join him in a low-risk, low-commitment way.

And Rothenberg recently invested in two companies in the FundersClub portfolio. He now recommends it to fundraising start-up founders.

Mittal plans to address the site’s limitations by creating more themed funds in which investors can contribute, based on industry sector, geographic area, accelerator or incubator. For example, it already has a fund investing in graduates of Silicon Valley’s Y Combinator program. And he plans to allow larger dollar amount contributions, so investors can kick in additional funding to the companies they’re most passionate about.

“We’d like to continue to be able to support companies through exit and IPO,” Mittal says. “It’s something more sophisticated individual investors already know is desirable — to double down on the winners. That’s something we aspire to do for our investors as well.”

Source: USA Today, Laura Baverman

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