At the 10th annual Southeast Venture Conference (SEVC), WealthForge was one of the growth companies chosen to participate. In addition to showcasing WealthForge’s recent growth and plans for the future, I participated on the Alternative Funding: Insights & Strategies panel, moderated by John Backus of VC firm New Atlantic Ventures and also included other prominent financial and corporate investors from firms around the Southeast.
During the panel, I was asked about what would become of Crowdfunding and Reg A+ and whether they were viable alternative methods for entrepreneurs to consider when raising capital. My belief is that it may be beneficial to some small or consumer-oriented businesses. However, when viewed in the broad context of capital markets, I'm less hopeful they'll contribute a significant amount of capital to entrepreneurs. Reg D is a $1T+ annual market, whereas I anticipate Reg A+ to represent a few billion. Crowdfunding under Title III of the JOBS act could potentially represent about the same. For the foreseeable future, I believe Reg D will remain the most used exemption for private capital formation.
We also heard from Bobby Franklin, the current President of the National Venture Capital Association, who discussed the state of venture capital and public policy. Bobby explained that the NVCA was formed in the 1970’s as the main educational and lobbying group for the U.S. venture capital industry. Over the past decade, the venture capital industry has performed admirably with more returns being distributed to LP investors than new funds being raised, showing strong returns in the asset class. However, Bobby highlighted two main areas of focus for the venture industry as we head into a new political election; first, that the U.S. has been declining in percentage concentration of world venture capital funds, down to 54% from the consistent 80+% of world venture funds in the 1990’s and second, that there's talk of lowering the 35% corporate income tax rate and in order to reassess funds, a new administration may raise the carried interest tax—further jeopardizing the venture industry. Bobby forewarned that additional taxes on carried interest would inhibit entrepreneurial and venture investing activity, which would in turn discourage American innovation due to less favorable incentives. Entrepreneurs and venture investors alike should be aware of this and take steps to keep this from happening.
To close the conference, Dave McClure, founding partner of the early stage investing firm 500 Startups, shared his experiences with being one of the early employees at Paypal to founding a VC firm, with the at the time "crazy ambition" to invest in 500 startups. Now, with more than 1600 startup investments in numerous countries around the world under his belt, Dave shared many of his lessons learned (including that time he passed on making an investment in Uber) and thoughts for the future on investment areas of interest, including virtual reality.
Overall, the Southeast venture scene seemed vibrant with more than 200 VC and Angel investors along with growth-stage entrepreneurs in attendance to network and share collective wisdom. Many attendees described this year's investor sentiment as more grounded as a result of the dip in the economy, causing the pace and valuations of new investments to slow down and be lowered to more moderate levels. There was much discussion about the growing number of unicorn companies, those private companies with valuations over $1B, and whether some of them may struggle later in the year to continue to finance themselves or become “Unicorps” and regress below the valuation threshold. However, all were excited and encouraged for what’s to come in the remainder of 2016.
Disclaimer: WealthForge provides this information to our clients and other friends for educational purposes only. It should not be construed or relied upon as legal advice.