500 Startups is Using Public Fundraising for New $100M Fund

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WSJ | By Lora Kolodny | June 26, 2014

500 StartupsActive early-stage investor 500 Startups is embracing new federal rules for public fundraising, the highest-profile firm yet to make use of the new rules.

500 Startups, founded in 2010, is using new Securities and Exchange Commission rules that allow firms to engage in “general solicitation,” or public fundraising activities. Fund partners taking advantage of the rules are permitted to speak at public events, tweet about and advertise the fact that their firms are raising a fund.

500 Startups runs a prolific early-stage venture fund; a large, global accelerator program for tech startups; and a series of tech conferences and events like “Geeks on a Plane.”

The firm plans to raise $100 million for its new, third fund, according to the contents of fundraising documents viewed by VentureWire.

Its founder, Dave McClure, said his fund has joined with New York-based SeedInvest, an online investment platform, to facilitate public fundraising.

SeedInvest created an “equity crowdfunding” platform, and other tools that facilitate online seed and venture investing or fundraising by both companies and funds.

View:  AngelList the Patron Saint of Equity Crowdfunding

The firm will use white-label SeedInvest technology to run a website, 500.co/invest, where interested accredited investors can review the firm’s public statements, make their interest known, get their accredited status verified, and put their money into 500 Startups’ newest fund without a lot of paperwork and snail mail.

500 Startups’ general-solicitation effort also will include capital raising for three smaller funds: one that will put follow-on capital into startups that it backed in its earlier funds, and two that will work with investors and startups in Latin America and Southeast Asia, according to the fundraising documents.

At least three other venture firmsff Venture Capital, Scout Ventures and NIN Ventures–have engaged in public fundraising under a provision of 2012’s JOBS Act, but most institutional firms haven’t embraced the possibility.

Mr. McClure said traditional investors, or firms and funds that have been around for at least five years, already have processes they are comfortable with and often raise capital “exclusively from larger institutional [partners] who they need to go talk to privately anyway.”

A younger firm like 500 Startups, he said, may need to be more vocal about its fundraising to attract new investors. And in 500 Startups’ case, the firm has a strong online presence that it plans to take advantage of to spread the word about its new funds.

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One Response to 500 Startups is Using Public Fundraising for New $100M Fund

  1. Bill says:

    Very interesting and innovative use of the Title ll rules to grow a fund. I think this is a great idea and one that will truly enhance the early stage startup community once Title lll and lV come online and there is a lot of investment capital and the ceiling is raised on the amounts that can be invested. Using Title ll is brilliant as a concept right now.

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