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The face of the early-stage investor is changing

Posted by Peter-Paul Van Hoeken on April 13, 2018

At just before ten in the evening of Saturday, August 31 in the year 1602, a notary knocked on a large wooden door and entered a candle-lit room. Inside sat the directors of the Vereenigde Oost-Indische Compagnie, or the Dutch East India Company, which had been founded earlier that year. The bookkeeper of the Dutch East India Company, Barent Lampe, was seated behind an imposing volume with deckle-edged pages and a vellum cover: the Amsterdam Chamber’s subscription share register. It had been lying open all month. Saturday the 31st at midnight was the closing date for subscriptions, and there had scarcely been a quiet moment all day. Under the watchful eye of the notary, the bookkeeper checked each entry and added up the amounts.

When he was almost done, the maid of one of the directors entered the room. She had seen investors coming and going all month.  Now, at the last moment, she had decided to invest a hundred guilders. She had been vacillating for days, but now that the book was about to be closed she could not shake off the feeling that something special was happening. After all, the charter of the Dutch East India Company spelled out that ‘all residents of these lands’ (the Dutch Republic) may buy shares in this new company and that there was no minimum or maximum investment.

The notary recorded the maids’ investment and suddenly thought of his own servant. She did not have a cent to her name, but the notary decided – at just a few minutes to midnight – to pay her a bonus in the shape of an investment in the Dutch East India Company.  The very last entry in the book read “Barent Lampe for Dignum Jans – 50 guilders.”

Having added the two final entries to the total, the notary embarked on his closing statement in the book. On the stroke of midnight a total sum of 3,674,945 guilders had been subscribed by 1,143 investors. Unbeknownst to its management, the Dutch East India Company had just completed the world’s first investment crowdfunding campaign.

Awakening the Dragon in all of us

After its Dutch debut, investment crowdfunding went dormant for the next four centuries, re-emerging in its modern form in the last decade. In those dormant years, the public has essentially been locked out from investing in early-stage companies as ultra-wealthy venture capitalists and angel investors have ruled.

Television shows like Dragons’ Den and Shark Tank paint the picture for us. A line up of dragons or sharks sit in their comfortable chairs, each with a stack of money on the table next them.  The entrepreneurs pitch their businesses in the hope of getting some money to fund their dreams and change the world. While the scenario makes for great entertainment, it is also a reflection of a somewhat dark reality.  Only a very small group of people have been able to invest in and profit from early-stage companies, as the rest of us remained locked-out until a company went public (at which point most of the major gains had already been made).  

Thankfully, investment crowdfunding is back and it’s using technology to transform all of us into Dragons. Investment crowdfunding platforms work a lot like other crowdfunding platforms (such as Kickstarter) however, rather than donating money in exchange for rewards or products, contributors receive shares in a real company.

Now, we all have the power to fund the companies that we believe in right from the beginning, while providing entrepreneurs access to a much larger pool of investors.

Spotify’s launch on the exchange - Same old song

Here is another recent example of how small investors have been locked out of private companies. Music sharing giant Spotify launched last week on the New York Stock Exchange.  Spotify is a hugely successful company. It is successful because of all of us; we all use it. Since last week, regular folks can invest in Spotify, but what many may not realize is that most of its growth has likely already been realized. Small investors simply missed out on the early stage opportunities with Spotify.

Spotify, with their existing community of users, would have been an ideal candidate for investment crowdfunding. Ultimately it is all the users of Spotify that made it as successful as it is today and through investment crowdfunding, they could have become “investomers”.

The rise of the Investomer

By democratizing access to investing in private companies, investment crowdfunding is poised to redefine the traditional division between a company’s investors and customers. Customers, who love the company’s ethos and products, will become investors and vice versa. We call this new hybrid, the “investomer”.

Investomers are powerful brand champions. They not only believe in the company, but have a financial stake in its success. In this way, an investment crowdfunding campaign is also a marketing exercise for young company, as investomers evangelize to those in their networks.

Simplicity and accessibility bring about democracy

The only significant difference between investment crowdfunding in 1602 and 2018 is the technology. Here is how it works today: you go online to an investment crowdfunding portal, learn more about the company and the investment opportunity, pledge an investment, sign the documentation, pay, and receive your shares. Congratulations. You are now a co-owner in the company. Everything happens online. It is that simple.

With minimum investments starting at $250 (or sometimes less), investment crowdfunding is truly a democratizing force. Whether you have a few hundred dollars or one million dollars to invest, you can create a portfolio of investments in early and growth-stage companies.

Such accessibility contributes to investment crowdfunding’s potential to change the distribution of wealth. When people can easily fund the companies they believe in their investments drive entrepreneurship, innovation, economic growth, and job creation everyone.

From the Dutch Notary’s maid to the venture capitalists of the 20th century, and back, the face of the investor is changing, and it’s likely that it looks a lot like you.  

Until April 18, you can invest in FrontFundr and be part of the future of investment crowdfunding. Find the details here.

Full details of the offering can be found in the Offering Memorandum. This document is for information purposes only. Please consult your finance professional before making an investment.

Tags: News, Company Feature

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