Angellist.com has changed the game, along with this 2013 rule change.
On Angellist, accredited investors can invest $1,000 into syndicated deals, the lead makes 20% carry, but it opens up investing to regular people to see dealflow.
For a business, the best source of cash is their customer. It means the business is actually working, providing a good or service of worth. However, sometimes to get there, business’s need cash upfront to build the things that provide the good or service. That’s where investing comes in. Investors give businesses the necessary cash upfront, in return for more cash later, in the future. That extra cash is going to come from a portion of the cash the business gets from customers, whether indirectly through valuations or directly through dividends.
The problem with public markets is that it’s all secondary markets. When I buy a company’s shares on the stock exchange, I’m buying them from someone else who no longer wants to own those shares. I’m not really helping the company directly or in any way, the company isn’t taking my cash. The one that ends up with my cash is the seller of those shares. So there’s a difference in incentives, the seller is giving up opportunity for cash now, so their implicit view is that opportunity is less... sometime in the future. While the buyer is giving up cash now (to the seller) for the opportunity that the company (or asset) will be more valuable later. There is no intrinsic building going on, the only thing secondary markets provide is a clearer signal as to what a company might be worth, and what the cost might be if a company wants to raise further capital in the public markets.
Vs direct investments, whether debt or equity, the goal is to help the company grow and everyone’s incentives are aligned.