KANSAS CITY – The Angel Capital Group logo is comprised of a light bulb with its filament shaped into a dollar sign. An angel’s halo hangs over the top of the bulb. It’s a symbolic trifecta that combines some of the favorite things of ACG CEO Rachel Qualls: Ideas, do-gooding, and money.
Qualls, visiting as part of Kansas City’s monthly Technology Entrepreneur Speakers Program as well as one of the numerous One Week KC events, is evangelical about venture capitalism. “We’re all here to change the world,” she said. Qualls said she thinks the innovation to fix many of the world’s problems is already out there. All that is needed is money to connect ideas to reality.
And it was money that Qualls came to talk about. Much of her presentation focused largely on how Nashville-based Angel Capital Group plans to stay relevant.
On April 5, President Barak Obama signed the Jumpstart Our Startups (or JOBS) Act into law, opening the doors to crowdfunding for startup businesses. Under the new law, companies with revenues less than $1 billion can seek cash from private investors online without registering with the Securities and Exchange Commission. These companies will be able to raise up to $1 million dollars from any number of investors through crowdfunding sites.
Observers like Qualls expect the regulatory changes will allow smaller investors to help fund startups and entrepreneurs, and will allow startups to put off or avoid going public longer than ever.
The problem with public stocks is that even if investors research companies whose work or products are something you actually believe in and want to support, your investment in the stock itself does nothing to directly help a company, Qualls explains A stock is merely a publicly-traded object, whereas private investing puts money directly in the hands of entrepreneurs and startups trying to bring their idea to life. Also, for a company, launching an IPO is expensive, time-consuming and it cedes control to investors and regulators.
Where investors have the chance to make a difference is through private investment, but venture capitalism has historically been the domain of the wealthy. “There’s all these opportunities that the public doesn’t get to invest in,” Qualls said. She hopes the new crowdfunding legislation will help change that.
Along with new opportunities, Qualls also sees three potential problems for investors with the crowdfunding revolution on the way:
- Access to quality investments, or a noisy marketplace of ideas.
- Ease of transactions with potentially thousands of people pooling their capital together to invest in a single company.
- Liquidity -an old problem made more complicated in a crowd-funded world.
Networks such as Angel Capital might be able to help calm the noise of the crowd-funding market by adding credibility to investment opportunities. “I only look at deals that my friends—the people I like and respect—recommend,” Qualls said.
While there are online venues in place such as kickstarter that can help startups market themselves to the crowd, Qualls said Angel Capital Group, with its experience and lawyers, can help investors and companies at the deal-sealing stage of a transaction.
Contract negotiating between companies and their private investors may be more important than ever with so many investors coming into the deal.
“The one person who put in five bucks is going to be your biggest headache,” Qualls joked.
The solution, Qualls said, is to pool all investors together into just one manageable entity that a company’s CEO has to contend with at the board table. This sort of thing is done all the time now. Qualls wants her company to help do this at the crowdfunding level, with just one person (such as herself) making decisions on behalf of all investors said. “All these investors want cash on their investment but all you want to do is run your company.”
As for the liquidity issue, Qualls pointed to existing secondary markets for private equity. She thinks these have potential to allow investors to jump ship if they get antsy waiting for a company they invested in to realize a large cash bounty, such as by going public or sell out to a larger company. It could also create a new liquidity stream for companies.
Whether or not crowdfunding will change the world in the way Qualls and many investors and entrepreneurs hope it does remains to be seen. What is apparent though is that Qualls and her peers are already busy looking for new opportunities to innovate in the new investing landscape.