Venture capitalists should embrace rather than pan crowdfunding, a partner in a Princeton investment firm said at a panel today addressing financing opportunities for early-stage life science companies.
Lorenzo Pellegrini, a partner in Care Capital LLC, a venture capital firm with $500 million under management, said crowdfunding has caused division within the venture community now that federal legislation aimed at easing the ability of private companies to raise capital online from small investors is taking effect.
"Venture capitalists are split in the perception of what is going to happen," Pellegrini said. "Some are fully embracing crowdfunding; others are absolute deniers."
"We view it more as an opportunity," said Pellegrini, who participated in a panel discussion at the Bridgewater Marriott, part of a daylong CEO Summit organized by BioNJ, a trade group for the state's biotech cluster.
Pellegrini said venture capitalists — organized groups that tend to invest larger amounts in companies once they get past startup stage, rather than the smaller more dispersed amounts of seed funding envisioned by crowdfunding advocates — are concerned about being bypassed altogether.
But Pellegrini said it's better for companies to identify how they can use crowdfunding to their advantage, citing a hypothetical example of a venture firm seeking to invest $12 million in a company, but having only $10 million available. That firm could use crowdfunding to make up the difference, he said.
Unanswered questions persist about crowdfunding because federal legislation authorizing such vehicles — known as the Jumpstart Our Business Startups, or JOBS Act — has barely taken effect.
A provision allowing companies to use public advertising to solicit investments, a method previously banned, began Sept. 23. But more comprehensive rules on equity crowdfunding have yet to be written by federal regulators.
Long term, Pellegrini said the reputation of crowdfunding will depend on how well it survives the first few years. Critics have argued the JOBS Act needs tighter regulation to prevent fraud.
Chris Tyrrell, CEO of OfferBoard, an equity firm that supports crowdfunding, said crowdfunding appeals to many investors with available capital who have not had access to less regulated private channels.
"What the JOBS Act is going to do is bring a whole new class of investors to the table," Tyrrell said. "Companies raising capital will have access to a different kind of investor."