by: jouko ahvenainen
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Some time ago I read a book about Goldman Sachs, maybe the world’s most respected finance institution in the 20th century. It’s still a top tier company, but the last years in the finance sector has created dents in the reputation of  many traditional finance companies. Therefore now it’s ample time to build the future of finance.Why do I mention Goldman Sachs? Because to put this discussion, it requires the proper historical context. Marcus Goldman founded the company in 1869, and it took years and many crises before it became the legendary Goldman Sachs.

The New York Stock Exchange started 1792, when brokers needed a common market place to trade securities and get a better funding market.  A lot of finance regulation is from the 1920’s and 30’s. As Congressman Patrick McHenry, the father of the crowdfunding bill, commented in our podcast, “the regulation is from a time when the telephone was the latest innovation”. The Internet has mainly brought only a new distribution channel for the finance sector; for example, offering Internet banking and access to stock market brokers. But I believe soon we will start to see that the Internet can really change the business models, bypass useless middle-men and make the finance market more open and effective.

Why this kind of historical review and comments for the Grow VC 2-year blog post? I think it tells something about inertia in the finance sector. It tells a story about regulation and the power of money. We have seen a lot of regulatory discussions, claims why new models cannot work, but also big positive changes in the climate. Crowdfunding was a totally new and unknown area when we started to plan and build the service.

It is still a very ambiguous market, with many different models all the way from donations to real investments in different asset classes. In our past two years, we have achieved a lot of success, thousands of companies and investors, success stories, over 100 funding networks in our platform, even the first exits. However, this is still very early days in the market and in the change of the financial sector.

The same short and long term thinking is also relevant for startups. I sometimes simplify and divide startups into two categories: 1) short-term hit-and-exit startups, and 2) long-term companies to have sustainable business or change the world. The first category gets a lot of publicity nowadays, they make a lot of noise, raise large VC rounds, and quickly exit or fail. And it is totally fine, they can create a good new technology or business model. But we must not think that they alone represent the big picture of entrepreneurship and business, and we cannot think of entrepreneurship only through a kind of celebrity culture view of a few serial-entrepreneurs and business angels. We need the funding market and financing for all kinds of companies. The well working funding market is much more than some VC’s or business angels. Our 5-point list for the funding market is the following:

  1. Market place and crowdfunding for early phase funding. Many companies can start with small money, but when a bank loan or credit card is no longer a feasible option for many startups, these new models help to start. They also enable small steps in the funding that makes sense both for entrepreneurs to get better valuations and investors to optimize the risk.
  2. Liquid market for different phases of the company. Liquidity means the possibility to get reach more investors to invest in early phase companies, if the market has enough supply and demand to also sell assets in different phases.
  3. Models for different kind of investors to cooperate equally. The market cannot work properly, if friends and family, business angel and VCs cannot work together properly and trust to one another. In the ideal marketplace, all these parties work and invest together like different investors can invest in the stock market. It also means ordinary people can invest in startups, diversify their risk to several companies and participate in success stories.
  4. Full ecosystem. The stock market has many actors like companies, investors, brokers, analysts and funds. The same is needed in the longer time span for startups and the smaller company funding market.
  5. Better IPO Market. The IPO market doesn’t work properly anywhere, not even in the US at the moment, and it’s not very attractive for companies to go public. There are several proposals to get the stock markets to work better, for example to cut costs, promote longer-term investments and not only high frequency trading and simplify regulation.

As a whole I would summarize, that we need an effective market and marketplace ecosystem from the very early phase startups to the big corporations. The technology and tools have developed from the early days of Goldman Sachs and stock exchanges. People demand change, they want to see a more democratic finance world. These are all big movements and they don’t happen over night. But like any big movement, they are unstoppable. We at Grow VC, share this vision for the future and our mission is to build a part of this, the marketplace. It takes a lot of work and it only happens through small steps and small wins, even setbacks at times.

The next steps in this vision are, 1) multiple language versions, 2) follow the crowd investment model and 3) many tools for the investment process itself. We have seen a great two years, many wins and many challenges. We are dedicated to realizing our vision and will spend as many years as needed to make the market work properly. Everyone can participate in this journey by signing up to  our service, helping us build it, starting your own funding service and building other parts of the ecosystem.

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About the author

jouko ahvenainen Jouko Ahvenainen is a serial-entrepreneur, e.g. co-founder of Grow VC Group, a pioneer in new funding solutions, including equity p2p investments. He participated in changing US finance regulation, getting the Senate and President to allow crowdfunding and has worked with EU finance regulation. Jouko started his work with crowdfunding models in 2008. Jouko has been listed Top 100 Influencer in Digital Industry and Top 100 Of The Most Influential Thought Leaders In Crowdfunding.


This entry was posted on Thursday, February 16th, 2012 at 3:11 pm and is filed under Online Startup Business, Private investors, Seed Capital, Startup Investors, VC Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.