Ourcrowd head Jon Medved with Jerusalem Mayor Nir Barkat,.
(photo credit: COURTESY OURCROWD)
Jon Medved, an ardent capitalist, stands in front of 3,000 investors, start-ups and businesspeople in Jerusalem, picking apart a graph that demonstrates one way capitalism creates inequality.
On the left, tech giant companies such as Apple, Microsoft and Amazon are represented by half gray and half orange bars. The orange part is the value the companies created when they were private – value that went to their private investors and owners – while the gray represents value created since the company went public – value from which the general public could benefit by buying shares.
On the right, companies such as LinkedIn, Yelp and Twitter are nearly all orange.
When people invest in public tech companies today “there’s no more gray,” says Medved, the founder and CEO of equity crowdfunding company OurCrowd, at the Global Investor Summit in Jerusalem.
Companies are staying private longer – the average age of companies going public has increased from five years in 2000 to 11 years in 2014.
In other words, in today’s market the big rewards go to private investors instead of the public at large, which invests in publicly traded companies through retirement funds, 401(k)s and IRAs.
OurCrowd is hoping its platform of equity crowdfunding will change that.
“This is the sexy asset class you’ve always dreamed of but never been able to get into,” Medved says.
More than just an interesting market trend, the implications of this shift are profound.
The New York Times
said the trend “may be the single most important psychological shift underlying the current tech boom.”
“Unless you’re a member of this boy’s club, and I say that because it’s mostly white males, you’re totally frozen out,” says Yori Nelken, a general partner of the OurCrowd First fund, which focuses on seed-stage companies.
Well-connected millionaires and billionaires who want to invest in promising new start-ups can reap the rewards, while the average person loses out the opportunity to get a good return.
“What OurCrowd is doing is actually breaking this boy’s club structure that’s been maintained for the last 30, 40 years,” he explains.
The platform is still far from being fully “democratic.” It only accepts investments of $10,000 or more from accredited investors, which are defined in the US as having at least $1 million in assets outside the home or an annual income of $200,000.
“It’s democratic to the extent that it can be under current regulations,” Medved says.
Even so, only about 3 percent of the 10 million accredited households in the US are involved in that kind of investing, he adds.
In other words, equity crowdfunding is making investment in private hi-tech companies easier for the rich, and not just the ultra rich. There is a logic to the regulations as well. Public companies are forced to make broad disclosures to ensure a degree of transparency that aids informed decision making, whereas private companies do not.
“The regulation is there and it’s good that it’s there, but it didn’t move as fast as we would have wanted, so our movements for opening up equity crowdfunding didn’t catch up,” Nelken says.
But new regulations that may make it even easier for “regular” people to invest are around the corner in the US, and OurCrowd is looking to find other ways to help everyone get a piece of the action. It’s in talks with institutional investors that manage pension and retirement funds to see if they can become investors in the platform.