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Investment banks: Gatekeepers no more as Crowdfunding changes the game.

By Kristin Voinovich For Venture Beat

January 6, 2013 12:18 PM

Investment Bankers have traditionally been the gatekeepers of access to the capital markets.  It is time for crowdfunding to play a greater role.

The caliber of underwriting firm is often an indication of the quality of the issuing company. The investment banks are paid well for that implicit endorsement, but that puts their reputations on the line. Their success is tied to the execution, after market performance and perception of the deals they complete –so they had better be selective and smart.

However, the banks are not infallible. The capital raising process has been inexorably altered by many different changes to the funding environment.  I am not talking just about the botched Facebook IPO either.   But the banks are pretty good.

The playing field between institutional investors and “mom and pop” is not level.  The market is driven by inefficiencies and the average investor is generally on the wrong side of the spread.  The differential comes down to knowledge.
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The Crowdfunding Crowd Is Anxious

By AMY CORTESE for NY Times

RYAN CALDBECK was stumped. A director at a private equity firm, he was taking part in a panel discussion at a consumer goods conference last summer in New York when an entrepreneur raised his hand with a question: Where could a young company with just a few million dollars in sales go for money to grow?

Mr. Caldbeck and his peers on the panel fumbled for a response. The fact is, most private equity investors and venture capitalists won’t touch a consumer products company until it has surpassed $10 million in sales — anything else is too small to bother with.

The best advice the panel could offer was for the entrepreneur to tap his credit cards.

“The purpose of the panel was to help entrepreneurs raise money, but we had no answers,” Mr. Caldbeck remembers. “That’s when I knew that there is a big issue here.”

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