Innovation Fridays: Conversations on Entrepreneurship, Part 3

Crowd-funding your startup?

Today’s conversation focuses on crowd-funding – the ability for companies to seek investments from a large pool of small investors via the Internet. Is this growing funding option a game-changer? Our experts say maybe for some entrepreneurs – but not for startups that need a lot of cash to scale and grow.

Dan Beyers, editor of the Washington Post’s Capital Business, recently debated the topic with Elana Fine, managing director of the Dingman Center for Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, and veteran investors and Dingman entrepreneurs-in-residence Ed Barrientos and Jason Shrensky.

Listen to the full discussion now | DOWNLOAD MP3

Shrensky says crowd-funding is great for some entrepreneurs – “like the neighborhood pizza guy who wants to experiment with a more expensive mozzarella,” – but not so great for say, tech startups. “I don’t see it as a way – and I think it would be very dangerous – for people to go in and do investing in super-risky businesses that have long payoff times and may need to change their business plan many times to be successful,” says Shrensky.

Fine says crowd-funding can be very helpful for entrepreneurs who need relatively small amounts of capital -- $25,000-$50,000 total. “I’d recommend it – but very carefully,” Fine says. “From an entrepreneur’s prospective, it can give a little bit of a false sense of your balance sheet. … I think it’s harder to then see how you’re going to raise money down the line.”

For companies that need more than a small injection of capital, Barrientos says crowd-funding can be a great way to augment the fundraising process. “You’re basically amplifying your reach to people that may be out on the West Coast, or in the MidWest. It can help you round-out a [funding] round.”

Barrientos currently manages an angel investment firm and heads Brazen Careerist, a career focused social networking site targeting Gen Y. Shrensky is an active angel investor and also splits his time between two startups he co-founded: ÜberOffices, a co-working office space in Arlington, Va., and enterprise software developer ComplexInterests. Before heading up the Dingman Center, Fine was a venture investor and advisor as vice president of Revolution Partner, an investment bank specializing in mergers and acquisitions and private capital advisory for the tech industry.

This is the third segment in a series of three podcast installments capturing the group’s full conversation.