Ask any startup founder: The process of securing cash for a new startup is a harrowing, time-consuming process that can involve meeting dozens upon dozens of potential investors, with no guarantee of success.
It’s a huge distraction from actually running a company, during the days where your involvement is most needed.
This is a problem that Alex Mittal and Boris Silver are very well acquainted with, as former startup founders themselves.
“It’s a very repetitive, inefficient process,” Mittal says.
That’s why, four years ago, they started FundersClub — what they see as a better, more humane way for startups and investors to find each other, taking advantage of very Silicon Valley ideas like network effects, crowdsourcing, and the power of the web.
“Software is eating the world; FundersClub is eating venture capital,” Mittal says.
FundersClub has been called the “Kickstarter for Venture Capital.” Using FundersClub, would-be financiers all over the world can get in on the high-risk, high-reward world of Silicon Valley startup investing, even if they’re not part of the traditional “old boys club” of the venture capital scene.
Now, FundersClub has just shy of 18,000 members — individual investors from all over the world — who have made 247 early-stage investments in 195 companies. That includes Silicon Valley high-flyers like Slack and Instacart. It looks like FundersClub is working as intended.
Top Silicon Valley firms like Andreessen Horowitz, Sequoia, and Kleiner Perkins Caufield Byers have all followed on to early FundersClub investments. From July 2012 to March 2016, FundersClub reported unrealized net IRR of 37.1%.
And on Friday, FundersClub announced the launch of FCVC Advisors — a new arm of the business to keep the momentum going by letting instutitional investors like hedge funds, endowments, and foundations to get in on the action.
Not exactly Kickstarter
Mittal says the Kickstarter comparison is “understandable,” but only half-right: FundersClub has an in-house staff that does the same due diligence and vetting as any other venture capital firm. Those 18,000-ish members basically scout for prospective deals, but FundersClub won’t list it on the platform unless it passes muster.
Plus, the average FundersClub investment amount is around $250,000, Mittal says. So the firm is focused on smaller, younger companies with big opportunities in front of them, in order to get the most bang for their members’ buck.
“There’s actually a high standard, a bar that has to be cleared,” Mittal says.
Furthermore, to join the FundersClub “network,” you need to be properly vetted and certified as an investor. With members making an average investment of $10,000 in each company, and a high risk that a company could go bust and leave investors with nothing, FundersClub isn’t for everyone.
“We’re very transparent about the risks,” Mittal says.
Advantages to each
For both sides, there are clear advantages.
For startup founders, they get access to that 18,000-member strong network. If a FundersClub-backed founder needs an introduction at, say, Facebook’s Oculus, they can log on to the website, see if any of their backers works there, and ask for an introduction. Plus, it takes less time than the traditional hustle for capital, especially at the early stage.
And for those investors, it gives them access to the Silicon Valley startup scene. The traditional FundersClub investor is usually well-off, but definitely not obscenely so — meaning that, unless they’re lucky enough to know a guy who knows a guy at the earliest stages of building a company, it’s hard to get a foot in the door and use startup investments to diversify your portfolio.
“That kind of access previously wasn’t possible,” Mittal says.
Now, with the launch of FCVC Advisors, FundersClub is taking the same principle and bringing it to the more traditional sources of venture capital, including funds and foundations. Typically, larger institutional foundations, or LPs as they’re called, opt to invest their money in VC stalwarts like Sequoia and Andreessen, but there’s still a line out the door just to participate.
“The problem is that it’s very lonely at the top,” Mittal says.
By using this new insitutional arm to bring in larger investors, FundersClub can add them to the network and keep that train rolling. Startups get easier access to those institutional investors; those institutional investors get more direct access to startups. That’s important, as startups take longer to enter the public markets.
Most of all, though, Mittal says it’s just furthering FundersClub’s mission of reinventing venture capital — a model that he says hasn’t changed much since the ’60’s — for the modern web era.
“We want to be the Sequoia of the internet,” Mittal says.
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