Retail Investors Are Investing Billions To Disrupt the Venture Capital Market, and It's Working

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Disruption has been pretty commonplace lately.

The internet age has changed nearly everything in a few decades. Shopify Inc. (NYSE: SHOP) disrupted and democratized owning a business. Robinhood Markets Inc. (NASDAQ: HOOD) democratized investing in stocks and crypto. Tesla Inc. (NASDAQ: TSLA) democratized electric vehicle ownership.

One thing most of these companies had going for them was the millions of dollars venture capitalists (VCs) dumped into their stocks as a means of helping them meet their goals. Venture capital can be lucrative because getting just one startup investment right can make an entire portfolio. Uber Technology Inc.’s (NYSE: UBER) seed round investors made a respectable 3,000,000% return when it went public.

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Now, retail investors are disrupting the very venture capital market that helped break down these barriers to entry over the past few decades. Ironically, venture capital, despite its inclination toward democratizing industries, doesn’t seem to share the same inclination for its own industry.

Until 2016, it was illegal for everyday investors to invest in startups. But that is changing, and it is changing fast.

The Jumpstart Our Business Startups (JOBS) Act went into effect in 2016 allowing anyone to invest in startups. This created the market known as equity crowdfunding.

Since 2016, retail investors have invested $2.3 billion in U.S. startups. Companies raising funds on Wefunder, a leading equity crowdfunding site, have created over 34,000 U.S. jobs.

Startups can take as much as five to 10 years to grow to an exit, but when they do, the gains can be astronomical.

Early investors in Heliogen (NYSE: HLGN), a startup that raised on SeedInvest, resulted in gains of 10,000% for retail investors after its initial public offering (IPO).

Atlis Motor Vehicles (NASDAQ: AMV) raised its earliest stages on StartEngine and went public in 2022, giving some investors a return of over 60,000%.

Given that the industry is less than 7 years old, there likely won’t be a ton of exits for a few more years. Of the $2.3 billion invested in U.S. startups since 2016, the majority was in 2021 and 2022.

It doesn’t look like the industry is slowing down anytime soon. StartEngine and Wefunder have hundreds of startups raising at any given time, effectively allowing everyday investors to invest in top startups alongside venture capitalists, angel investors and billionaires like Bill Gates.

Some examples of raises going on now are Gameflip, a startup that has raised over $10 million from VCs and $680,000 from retail investors. It’s raising on StartEngine to scale up its marketplace centered around buying and selling in-game items, including normal and blockchain-based assets.

Sensate is a startup that has raised over $2 million from everyday investors on Wefunder to build out its patented stress-relief device.

For those looking to capitalize on the massive trend of investing in artificial intelligence (AI) startups stoked by the release of ChatGPT, RAD AI has cleared $2.5 million raised from everyday investors and is backed by Fidelity Investments and other VCs. It’s raising money to ramp up its AI-based marketing platform.

There are hundreds of examples of top startups raising funds and retail investors putting in millions of dollars. Even if the venture capital world doesn’t like it, equity crowdfunding is here to stay.

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