One of the commonly touted advantages of angel investment is the intangible benefit that comes in the form of the insight, experience and connections that the significant investor brings over and above the capital. The investor is typically experienced, perhaps an entrepreneur, who has seen it, done it and can share that insight with the budding business and bring significant additional value alongside the money.
This is true in many cases and it can prove immensely valuable to be coached and advised and mentored in this way. Indeed I recall being involved with an incubator model that was specifically focused on bringing human skills, insight and expertise as an investment as opposed to money back in the dotcom boom days. It was an interesting and successful scheme which, with hindsight, had the additional benefit that when the bubble eventually burst those investors in enterprises that did crash felt a significantly less disastrous impact, and where they did it was largely in the egos than the pockets.
As crowdfunding becomes an increasingly popular model for raising capital, some have asked if that valuable intangible human element of investment is being lost. It’s a legitimate question but I would say no, and justify that on the following basis.
One of the propositions of crowdfunding is the idea of distributed cognition or, if you prefer, the wisdom of crowds. The idea being that a wider and more diverse group bring their expertise to bear on assessing, developing and honing the concept or business plans of the crowdfunder.
The viral reach of crowdfunding can enhance the chance of serendipitous connections and introductions both directly and via the advocacy of investors.
In many crowdfunding campaigns investors offer more than cash. For example Andrew Denham of the Bicycle Academy states in our recent interview with him that he has a promise of 300 man hours of expertise over and above the £40,000 investment he received. That represents a significant benefit to the Academy and is extremely valuable. And bear in mind the breadth of experience that you have access to in the crowd of investors in a typically crowdfunded environment.
Finally, the equity model of crowdfunding still attracts those people in that you may wish to bring on board as a non executive or advisory board member. Crowdcube, for example, not only raised £300,000 in their recent offer but also found three people they wanted to have on their Board.
So, is there a dilution in the availability of human capital in crowdfunding scenario? No, I don’t think so, but it is probably different and more diverse than the traditional model.
But what do you think?
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