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Crowdfunding Won't Solve The Venture Capital Series A Crunch - Forbes Article

1/23/2013

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Today's Forbes.com article "Crowdfunding Won't Solve The Venture Capital Series A Crunch" provides an interesting look at the growing gap between angel/seed financings and Series A financings.  According to the article (citing Pitchbook), the ratio of seed financings to Series A financings in 2008 was 1.9:1, but had grown to 3.3:1 in 2012.  Reasons cited for the gap include:
  • Larger VC funds make Series A financings harder to do.
  • The growth in angels and incubators.
  • Poor investment decisions made by angels and seed investors.

I would add to this list another bullet point: valuations.  Many VCs I speak with say that angel/seed rounds have valuation inflation, which makes it much harder for an institutional VC to do a deal at the Series A stage.  If the valuation is too high, then (1) the company (and its angel and seed investors) have to take a haircut on valuation (and suffer dilution as a result), (2) the VC has to pay a higher valuation, or (3) the deal doesn't get done.

The article goes on to discuss whether equity crowdfunding can fill the Series A gap, and argues that no, equity crowdfunding will not do this.

It's an interesting article and worth a read.  Here's the link:  
http://www.forbes.com/sites/ryancaldbeck/2013/01/23/crowdfunding-wont-solve-the-venture-capital-series-a-crunch/

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