The Dawn of Publicly Traded Startups

Lou Basenese

Tuesday, September 16, 2014

Editor's Note: We had an overwhelming response to last week’s interview with Lou Basenese, where we discussed a type of start-up that’s publicly traded. So we called Lou, the founder of Disruptive Tech Research, and asked him to put together a few more articles for you. Here’s the first one. Enjoy.

Last week, I spoke with Matt about Apple’s (APPL) Watch, and what it means for Energous (WATT), an innovative company focusing on wireless charging.

During the interview, I referred to Energous as a “public venture capital” investment.

Based on the emails you sent Crowdability, it seems like we hit a nerve:

Some of you were familiar with public venture, and were eager for more deals.

But others wondered if I was talking about a type of company backed by the government…

Or about a VC deal “gone bad”…

Or a shady penny stock promotion.

So before I tell you about more deals like WATT, I thought I’d clear up any confusion – and give this type of investment a proper introduction.

Let me start by explaining what public venture isn’t.

What Public Venture Capital Isn’t

Public venture capital doesn’t involve the government deploying public funds to assist startups…

Nor does it involve overhyped “penny stocks” – the type of companies whose shares are bid up by unsuspecting investors as company insiders quietly cash out…

And it’s not a venture capital investment that went public prematurely.

What Public Venture Capital Is

To put it simply, public venture capital involves early-stage companies raising capital not from private investors, but from the stock market.

Instead of raising multiple private rounds (Series A, B, C, etc.) before considering an IPO, public venture companies engage in a small financing round and then go public.

Any subsequent funding happens in the public market, via secondary offerings.

The key is this: we’re talking about a time frame of 9 to 18 months between initial funding and going public.

In comparison, it takes anywhere from three-to-seven years for a typical venture capital deal (if it’s successful) to go public.

Despite the shortened window, public venture companies often have high-quality management teams and top investors.

Take Energous, for example:

Its CEO has led eight out of nine separate technology companies to successful exits, and those exits are worth a combined $5 billion. Its Chief Technology Officer earned advanced degrees from Massachusetts Institute of Technology (MIT), and previously built technology systems for the U.S. Department of Defense.

And early investors include Millennium Management LLC, a well-regarded hedge fund that manages more than $20 billion.

Similar to Equity Crowdfunding

To put this type of investment in the context of Crowdability, public venture companies share many similarities with equity crowdfunded deals.

  • They represent early-stage, emerging growth opportunities
  • Their valuations are in the tens of millions of dollars, instead of the billions
  • Their products and services address large markets
  • Their executive teams have a proven history of success
  • And of course, like any early-stage or speculative investment, they’re risky. Their risks include technology risk, execution risk, and competition.

In brief, public venture capital companies are like publicly-traded startups. 

But since they’re publicly-traded instead of private, you don’t need to be an accredited investor to invest in them, and there’s no “minimum” investment.

If you have a brokerage account and a few hundred dollars, you can get involved today.

Why Now?

Public venture capital is just starting to emerge as a growing trend.

I’m noticing more and more startups pursue this route.

Of course, it’s going virtually undetected by the mainstream financial press.

Which is why now is the right time to learn about it.

As Wayne recently wrote, “To make real money, you need to be early to the party.”

In the case of public venture, being early will give you the potential to earn big profits.

Now that you know what public venture capital is, in the weeks ahead, I look forward to sharing some specific opportunities with you.

Good Investing,
Louis Basenese

Ahead of the tape,