Thanks to crowdfunding platforms like Kickstarter and recent changes in fundraising laws, even Joe the Investor can get in on the start-up action. And for start-ups, that means more opportunities to get in on the investing action.
Y Combinator-backed FundersClub is one start-up aiming to capitalize on the frenzy. It launched Wednesday as a service somewhere in between a free-for-all crowdfunding platform and a site for seasoned angel investors.
FundersClub lets investors plunk down as little as $1,000 in its portfolio of companies and get paid by the start-ups upon exit. The site claims that all of these start-ups have been pre-screened for "high user growth, increasing revenues, reputable investor backing, and/or other signals of traction and growth." Potential backers can also see the start-ups' funding goals and current VCs or angel investors.
For now, only accredited investors can participate-–those with annual incomes greater than $200,000 or personal net worth of $1 million or more--but the company says this may open up to non-accredited investors as well once the JOBS Act takes affect in 2013. The site provides end-to-end investing for those who qualify, including accreditation screening, payment processing, and legal document handling. Up to 95 individuals can invest in each start-up with a minimum investment of between $1,000 and $5,000.
FundersClub, which also received funding from First Round Capital and Start Fund, aims to make money in the future by operating liquidity services for private companies through its own trading system.
According to the site, most angel groups charge annual membership fees somewhere between $2,000 to $3,500 a year, plus additional charges--whether or not the start-ups do well. FundersClub charges only administrative fees, which vary depending on when each investor enters the fund, TechCrunch reports. But FundersClub insists it does not profit from these fees. By not charging commission fees, the company told TechCrunch, the site saves investors at least 80%
Still, there's no guarantee that potential investors will get a quick pay day. Most early-stage backers won't see a return for four to seven years... if at all.