The Disruption of Venture Capital with Tim Draper

Chance Barnett, co-founder and CEO of Crowdfunder, interviewed Tim Draper and discussed the rapid changes occurring in venture capital. Check out what he had to say:

How has crowdfunding changed the VC industry?

Equity crowdfunding has created a new form liquidity in venture capital. Ten years ago there were no forms of liquidity in the market. Our portfolio companies couldn’t go public and big companies weren’t buying. The only way to raise money was from other venture capitalists. Crowdfunding has changed all of that.

What is the best way to create changes in an industry?

If you want to see change in an industry start with the entrepreneur. Crowdfunding is used as a tool to empower entrepreneurs. It allows companies to get closer to their customers and it democratizes access to capital. Crowdfunding platforms are constantly innovating the dated VC model to meet the needs from this new generation of entrepreneurs and investors.

How can the equity crowdfunding + VC market become more scalable?

Bitcoin, smart contracts, and blockchains are some of the ways that the equity crowdfunding and VC exchange market can become more scalable. All these cryptocurrencies have decreased the cost per transaction. This will eventually lead to the frictionless movement of capital.

Do you have any advice for investors?

Diversify your portfolio! I still don’t know for sure which companies are going to be winners, by having multiple investments I lessens my risk. Another thing is assume that you will lose your investment 60% of the time. Get involved in 10 or 20 companies to get a better perspective of which industries are strongest.

If investing is not in your job description, I’d recommend following a syndication of an expert. Sometimes the idea may be great but people might not be right. One way to avoid these pitfalls is by paying a slight premium to join a syndicate (they do the vetting).

What are the traits you look for in entrepreneurs?

Before I meet the entrepreneur, I consider some other things: market size, power long term, if they are focused on commoditization or owning the customer, will their margins expand or contract over time, and are their markets dominated by lazy monopolies. Once I meet the entrepreneur, I consider the following from the team: will they dedicate their life to this cause and does the team work well together?

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