50% of Doriot Community agrees venture has been democratized to the masses.

That’s the headline, but we’ll dig into the details below as we continue our Community Mental Mapping exercise. Once again, our objective is to construct a framework that positions the Doriot Venture Community to gain advantages, translating into massive financial outcomes for the members. We’ll proceed step-by-step each week until we collectively determine where the true opportunities lie. And then, we execute on those opportunities.

First, a few updates on DVC Portfolio Companies:

Pacha is finding increasing success at Whole Foods and innovating in a space that frankly, we didn’t know could innovate: Crackers. In their words, “score”. Read the full update here.

Neighborhood Sun is launching another round on Wefunder. They’re touting a 257% increase in revenue since DVC member invested but coming in with a 10% markdown from where we invested in 2022. Read the full update here.

Web 3.0 Panel in Singapore

Earlier this week, Gerry Hays, a member of the Doriot Venture Community, had the opportunity to lead a panel of Web 3.0 experts while in Singapore as part of a program with the IU Kelley School of Business. Some key takeaways: Blockchain and Crypto are thriving in SE Asia, and there is concern that the United States will continue to fall behind if it doesn’t figure out a regulatory structure to accommodate new innovations.

Ultimately, it’s not reasonable to treat cryptocurrencies as commodities (i.e., Bitcoin), and, as long as they resemble securities under the Howey Test, the SEC is going to hold firm on their position. A change at the top (i.e., President) might push the matter forward, but that’s still a big if. Ultimately, as in RegCF, investors definitely want to make money, but they most definitely don’t want to be scammed.

If anyone in the Community would like to share anything they’re reading, an event they're attending, or a summary of an event, please let us know, and we’ll include it in the newsletter.

This week’s mental mapping exercise (#2)

Last week’s pitch was:

"In 2014, startup investing was only accessible to the wealthy, but today, in 2024, anyone can easily create an account on multiple RegCF platforms, browse numerous startups seeking funding, leverage reliable third-party services to evaluate investment opportunities, and participate with contributions as modest as $100. Access has been democratized, and now it’s just a matter of time before the masses realize the opportunity and start to take advantage."

Half of the members participating believe that venture has been democratized to the masses. The other half disagree, so let’s delve into what they had to say.

For those that agreed, there were some general observations including:

• Yes, but there has to be a better understanding of RegCF by the masses (i.e., education).

• It’s not as accessible as opening a brokerage account, but it’s straightforward enough that anyone can make an investment (from James Turnbull).

For those that disagreed, they had the following to contribute:

• Venture investing has effectively moved from tightly regulated to an aristocracy. Technically, anyone can invest, but the average investor is often on very unequal terms. Though, this may not necessarily be a new concept as the top decile of VCs has traditionally been responsible for most of the returns with many low quartile VCs actually losing money. It's a step on the path but a far cry from democracy.

• Startup returns are dictated by the power law, meaning a small number of companies capture outsized returns. Think Facebook, Uber, SpaceX, etc. While RegCF has opened up access to some startup investing to retail investors, the cream of the crop deals are still behind closed doors. They're only available by law to accredited angels, VC firms, and Family Offices. Even if a retail investor were to have a connection into the deal, to my knowledge, the law would prohibit them from investing. Because of this, retail investors are having their returns capped while taking on similar risk profiles to accredited and institutional investors. Until a retail investor can have access to the best deals, I believe it is wrong to say that startup investing has been democratized. (from Isira Perara);

• If I could partially agree, I would... but my reason for disagreeing is that while it feels like we are headed in a better direction, it also feels like RegCF offerings oftentimes end up being companies in dire situations that need a new-age ""bridge loan"" that ultimately comes from individual investors pooling funds. I do see this as progress (and some offerings are truly great investment opportunities in healthy companies seeking to allow the community to invest in their journey), but the idea that this is anywhere close to the access a standard VC would have is not true. I don't have the stats to back it up, but I would assume the percentage of RegCF companies that fail is even higher than the deals a VC reviews. That being said, I think standard VCs deserve to have a bit of an edge if they are able to offer access to considerable resources (both financial, operational, network, etc.) I just think we need to be clear that there is a long way to go before it feels truly democratized. (from Nolan Rains).

What seems to be the consensus is that the US Securities and Exchange Commission has done a good enough job promulgating regulations that allow for the democratization of venture to occur. So, in principle, one could argue that the Accredited Investor rule is far less relevant today than it was 10 years ago and that venture isn’t nearly as gated as most are leading us to believe.

But what stands out in the submissions above is that RegCF investors don’t seemingly have the same advantages as Angel Groups, VCs, and Family Offices. Specifically, the latter groups enjoy a more “bespoke” experience with proprietary and curated deal flow and negotiated terms whereas the RegCF investors are buying off the rack, so participating investors never know what they’re going to get and it takes lots of time to figure out what’s a good fit or not.

The current model utilized by WeFunder and Start Engine is that they spend 100% of their time recruiting Founders who, in turn, set the terms and then recruit their tribe to participate. If there’s enough early participation, the platforms will market the offerings as a momentum play to everyone else, hoping that it serves as a good enough “signal” to the market that the offering has high potential. Rinse and repeat. For VCs and Angels, the current model is that “we” have the capital, and Founders are invited to pitch and, if there’s interest on both sides, engage in a negotiation. So ostensibly VC and Angels operate very differently from RegCF.

So here’s this week’s Mind Map pitch:

Accepting that RegCF regulations allows for the democratization of venture, what’s holding retail investors back is that they want what VCs and Angels have: curated deal flow and a say in the deal terms.

I agree

I don’t agree.

Have a great weekend, everyone, and with your participation, we’ll be able to share what the collective has to say and move this Mind Map forward next week!

Team Doriot