For hundreds of years, Venture Capital has been reserved for an elite group of members of society. With the legal terms in place, only the wealthy could invest, and therefore the rich kept getting richer. In 2013 Robinhood tried to change the stock market investment scene, making stock trading accessible to all income classes. Before Robinhood, buying shares of stock in a company involved an inconvenient and lengthy process. Venture capital is finally catching up, and countless firms have similar propositions.
The VC legal investing terms were put in place so that people only invest capital that they do not rely on for their livelihood. For example, let’s say John is making $50k a year, chances are John needs that money to survive. On the other hand, say Jenna is making $200k a year, she has better odds of having a few extra dollars. The legal terms were put in place to protect people like John from gambling their livelihood away. However, there is a good chance that John has $5k to spare. Until recently, John’s investment opportunities were limited. He could invest in the stock market, bonds, crypto, NFTs, and more, but he could not invest in Venture Capital. “While the VC regulations aim to prevent novice and low-net-worth investors from making poor choices, they have effectively shut out these individuals from profitable private investment options.”
In the last few years and months, many firms have discovered methods to decentralize Venture Capital, making it accessible to investors like John. Some such firms include Sweater Ventures, Stacker VC, Angel DAO, and DAO VC. Instead of asking 30 LPs for $500k each, VC firms like Sweater Ventures ask 30 thousand people for $500 each; effectively generating the same $15m. They believe that regular investors should have the same opportunities as elite investors. Investing in VC has legal terms that would not allow John or me to invest, which is why decentralized VC firms had to get into the details of the legal terminology (Sweater SEC). In order to collect money from non-high net worth individuals, firms have a different SEC designation which allows them to pool money from regular investors. Nonetheless, they too invest in startups with potential for exponential growth like Venture Capital firms do.
The world is rapidly changing and decentralization is happening across many industries, not only venture capital. With VC catching up, regular investors finally have the option to invest in the same opportunities as high net worth individuals.
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