Early Investing

Mailbag: Don’t Confuse Angel Investing and Equity Crowdfunding

Mailbag: Don’t Confuse Angel Investing and Equity Crowdfunding

Q: Are angel investing and equity crowdfunding the same thing? I’m starting to hear people use the term interchangeably.

A: No, they are not the same. And people who use them interchangeably are doing a real disservice to the investment community. The two terms differ in important ways.

Angel investors write big checks typically worth $25,000 or more. Recently, the minimum has dropped to as low as $5,000 to $10,000, especially for online angel investors (those finding their startup investment opportunities online). But many angel investors still write six-figure checks.

Crowdfunders write much smaller checks, usually from $100 to $1,000.

Angel investors must be accredited investors, which means they must either make at least $200,000 a year ($300,000 as a couple) or have a net worth of $1 million (not including their primary home).

Crowdfunding is open to everybody. Most crowdfunders are NOT angel investors, but there is no legal reason why angel investors cannot invest in crowdfunded raises. They can still write their big checks.

But there are reasons why accredited investors tend to prefer angel investing over crowdfunding. Crowdfunders often give money via crowd SAFEs (Simple Agreements for Future Equity) and convertible debt. So they’re not buying equity directly, which could bother some angel investors. And with crowdfunding, voting rights and access to founders, advisors and boards of directors are limited. This could also bother angel investors.

Angel investors can invest in the early and early-middle rounds (Series B and C). Crowdfunders can invest in pre-seed, seed, post-seed and, occasionally, Series A rounds (through Regulation A+ raises). This may not seem like a huge gap. But the risk-reward calculus of a seed round, for example, is very different from that of a Series C round.

Angel investors, whether they’re making the investment offline or online, usually have to be “invited” into the round either by the syndicate company or by the venture capital firm leading the round.

Crowdfunders don’t wait for an invitation. It’s a big open tent. They can participate in any crowdfunding raise with no connections whatsoever.

What do crowdfunders and angel investors have in common? Level of knowledge and sophistication. I’ve met extremely knowledgeable and sophisticated crowdfunders and dumb-as-a-doornail angel investors. And the other way around too.

For both angel investors and crowdfunders, it takes all kinds.

+ Early Investing Co-Founder Andy Gordon

Q: Why aren’t other cryptocurrencies performing as well as bitcoin?

A: During the last crypto bull market, hundreds of altcoins (coins other than bitcoin) outperformed bitcoin. Tiny new coins saw their market caps rise from a few million dollars to hundreds of millions and even billions.

It will be different this time. Most of the cryptos that launched during the 2017 ICO (initial coin offering) frenzy failed to take off. A few are thriving. But they’re exceptions. This time, people will be more discriminating in the altcoins they invest in. And regulators have put a stop to ICOs in many countries.

Meanwhile, bitcoin’s technology and infrastructure are growing by leaps and bounds. The Lightning Network has the potential to make bitcoin transactions nearly instant and extremely cheap.

Importantly, people are using bitcoin as a “flight to safety” or “store of value” asset. When a country’s fiat currency runs into trouble and inflation takes off, people tend to flock to bitcoin.

A few weeks back, I highlighted a New York Times article about bitcoin written by a Venezuelan citizen. It was titled, “Bitcoin Has Saved My Family.”

I keep all of my money in bitcoin. Keeping it in bolívars would be financial suicide: The last time I checked, the rate of daily inflation was around 3.5 percent. That’s daily inflation; the annual inflation rate for 2018 was almost 1.7 million percent. I don’t have a bank account abroad, and with Venezuela’s currency controls, there’s no easy way for me to use a conventional foreign currency like American dollars.

Bitcoin is fulfilling a purpose in the global economy. It’s an emerging, alternative, speculative store of value (for now). Many of us believe it will be a mainstream financial asset in the future.

Don’t get me wrong, I’m still bullish on select altcoins. I’m just extremely bullish on bitcoin at the moment. Eventually bitcoin will face legitimate contenders. But for now, it owns the title of “digital gold.” This is why it has been outperforming other cryptos – and why it will continue to do so.

+ Early Investing Co-Founder Adam Sharp

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