How angel platforms work to finance and invest in startups
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I have been investing as an “angel” in startups for many years: I put small amounts into companies that I like or that I think can do very well. I started in 2016, when in Italy startups were still a marginal activity and there were few angels.
Over time, various opportunities have arisen to invest through online platforms such as crowdfunding. Platforms then sprung up to bring together angels and slightly more sophisticated investors. Angelist in America was born in 2010 to support the first angel investment in Uber. Today the intermediate platform has over 15 billion dollars in investments. In recent years, Odin in the UK and Roundtable in Europe have also been born.
But how do these platforms work? They operate by allowing a startup to intercept many small investors. As? Through Special Purpose Vehicles (SPVs), vehicles created to collect investments and appear in the capital of a startup as a single entity. The platforms manage the vehicles and act on behalf of investors in shareholder meetings. The founder must therefore communicate with a single vehicle rather than with dozens of people, and people can also invest smaller amounts than the minimum amounts that the startup can receive.
There are great benefits, but one of the big problems I see is transparency. I happened to find lesser-known platforms that advertised investments in startups, but then the investors’ money was stolen and misused. Since many startups fail, more responsibility is needed from the founders or platforms. Furthermore, not having a direct relationship with the company, but only with the vehicle, the investor struggles to assert his rights. There should be more stringent rules. The risk is of a major scandal of embezzlement of funds intended for investments in startups. Until a startup fails, it is difficult for these problems to emerge, but when it grows or makes an exit, investors expect a return. And if their money has never been invested there will be huge repercussions on the system.
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