Last week I made a venture capital investment in a company I had never heard of until a few days before. I don’t have a massive venture fund and I didn’t invest a large sum of money. I joined with many other investors in a private security offering through MicroVentures.
MicroVentures is a new concept in peer to peer investing. It is a cross between traditional p2p investing (such as Lending Club and Prosper) and venture capital. Here you are not providing loans; you are investing capital into a business. There is no repayment plan; you own stock in the company. The only real exit plan is a sale of the company some time down the track, hopefully for a large multiple return.
The minimum investment of $2,000 is much higher than other p2p investments and you need to be approved as an investor in order to participate. But if you meet their criteria and are interested in being an angel investor you can get started for a fraction of what you would need to invest in an angel fund.
Angel Investing Made Easy
After selling my last business in 2008 I had toyed with the idea of becoming an angel investor. I love the excitement of a startup business but the amount of time and money needed to become a successful angel investor was too much for my taste. MicroVentures solves both the time and money piece for me. With low minimum investments as well as their strict due diligence before taking on a company, MicroVentures makes the entire process easier. While it would be foolish to not perform some due diligence of your own there is some comfort in the fact that MicroVentures has already done a great deal of the legwork.
The way I look at this investment is that it adds to my diversification. I have a large portion of my portfolio in traditional asset classes such as stocks, bonds, commodities, REITs, annuities, and of course cash. I have a small but increasing percentage in p2p lending because I believe it is the best fixed income investment and it is a non-correlated asset class. I have an even smaller percentage in some high risk investments where there is the possibility of high return but I am prepared to lose my entire principal. My MicroVentures investments falls into this latter category.
How Does It Work?
While MicroVentures explains their process here, I can provide a brief synopsis. After careful vetting, MicroVentures places an offering on their site and then notifies potential investors. These investors can then login and view the details of the offering. This includes typically a detailed Private Placement Memorandum and other information ab0ut the company. If an investor decides to invest they just transfer the money from their linked bank account. If the full amount of the offering is not raised then all investor money is returned.
MicroVentures is only in its beginning phase itself with just one offering available right now. When I spoke with CEO Bill Clark last week he mentioned there are more offerings in the pipeline which should please the several hundred investors that have already signed up.
It is too early to tell whether MicroVentures is going to catch on and be the start of a new way for companies to raise capital. I really like the idea of the democratization of venture capital and I certainly hope it becomes a new trend. What I hope to do is build up a small portfolio of companies where I have a couple of thousand dollars invested in each. It would be great if I could get a 10-20 times return on my money for one or two of these investments but I am not counting on it. There is no question this is a very high risk and illiquid investment where the most likely outcome is complete loss of principal. It is a good fit for me, though. I get to invest in some interesting new companies and diversify into the heady world of venture capital.