THE BLOG
01/13/2015 10:44 am ET Updated Mar 15, 2015

It Takes a Crowd: Transforming Venture Investing

I enjoy disruption. That's why I love financial services, which is an easy target for disruption if there ever was one.

Just take an example from venture capital -- how the concept of "crowdfunding" could re-shape the way we invest in early stage growth companies.

Mighty oaks from little acorns grow. That is the allure of venture capital: the opportunity to invest in start-up companies whose value might multiply exponentially.

Consider a business with the funny-sounding name of Google. If you had invested $100,000 in the Internet search company in 1999, when its founders were scrounging up their first venture capital investment round, your stake would have grown to $16 million by the time the company went public just five years later. And if you had the good fortune to keep your money invested in Google, by March of 2010 it was worth close to $2 billion.

But that dream is really a fantasy, unless your name was Andy Bechstolsheim, the founder of Sun Microsystems and legendary angel investor who wrote the first check.

After him, Google's first venture investors were Sequoia Capital and Kleiner Perkins, and the lucky few institutions (maybe Yale, maybe CalPERS) that were able to "get in" through one of those two preeminent gatekeepers.

But there's disruption afoot in venture capital -- the opportunity for a far larger pool of individual investors to participate in high quality deal flow they would otherwise never get access to. And they can do it directly, company by company, not via some blind pool venture fund or through "fund of fund" intermediaries.

There are several "platforms" making the case today -- and more will no doubt follow -- but arguably the most successful disruptor so far, in terms of actual funds raised, is OurCrowd. Founded by one of the best known seed investors in Israel, Jonathan Medved, Ourcrowd offers high quality deal flow and due diligence focusing mostly on the hottest startups in Startup Nation -- Israel's Silicon Wadi.

OurCrowd takes crowd-funding from its roots in KickStarter to become a true access point for investors of all stripes -- and you get more than just a t-shirt for your troubles.

And that's an important distinction for folks familiar with the likes of Kickstarter or Indiegogo: OurCrowd is not first generation "crowdfunding," where passion and pluck, and a personal, touch often combine to draw interested supporters. OurCrowd Is a true venture capital investment portal, and it's about to light a whole category on fire.

I believe crowdfunding can transform (and improve!) venture and other "private market" investing in a number of ways:

Access: It can help democratize the asset class, opening up the playing field to individual investors. It could change the demographic and the dynamic of the industry over time (talk about disruption!)

Efficiency: Via OurCrowd's approach, investors can invest in only those deals they choose and pay only for what they invest in (there are no fees on "committed capital"). This can help reduce the length and depth of the "J-Curve" or valley of tears: the early years of private market drawdown funds when the general partner draws fees on committed capital, with no actual investments or investment returns to show for it).

Control and Independence: This approach helps to overcome the "trust me" factor of investing in a blind pool as with most private equity funds; the individual investor identifies and selects the investment from curated pool of pre-diligenced offerings.

Vintage and Deal Diversification: The degree of diversification controlled by investor; diversify across periods and vintages as desired.

Insight and Intervention: The crowd extends beyond passive investing club to active collaboration/intervention in portfolio companies, based on investor background and expertise; value enhancement from "activist" participation in growth of company.

Each of these innovations is valuable in itself, but together it shows how the concept of crowdfunding can truly transform the whole approach to investing in private market partnerships.

But it doesn't explain why OurCrowd has achieved such early leadership in the space. For that you have to consider the appeal of streamlined venture investing and combine that with the natural affinity of a community of Interest -- in this case interest in Israeli innovation. Together the two have struck a chord, and I venture that it will resonate broadly across the investment landscape.