In a Timothy Lee interview of Marc Andreesseen, Andreessen says:
“…growth companies go public much later. Microsoft went out at under $1 billion, Facebook went out at $80 billion. Gains from the growth accrue to the private investor, not the public investor”
Tomasz Tunguz in a post, “The Five Forces Shaping The Fundraising Market”, reports that:
“Startups require 50% of the capital of 12 years ago to become publicly traded companies or reach twice the revenue on the same dollars invested.”
Putting these two ideas together we realize that the capital efficiency of recent tech investments has enabled the private investors (venture capitalists and private equity) to manage capital requirements more easily and keep for themselves a large amount of the value that used to accrue to public company investors. So what was the factor to explain the emergence of crowd funding for equity?
Crowd funding permitted investors not able to secure limited partnership interests in VC and PE funds the opportunity to invest and garner the returns of high growth companies that were no longer available in public market listings. While many, myself included, have found fault in recent years with financial markets, market makers do demonstrate an amazing ability to innovate to provide the desired returns to a specific group of investors.