Crowdfunding is a powerful tool because it transcends finance. It is a vehicle for marketing, innovation, market validation, and sales – everything that is essential to the success of a business. Massolution collected information on 1250 active crowdfunding platforms across the world: global crowdfunding experienced accelerated growth in 2014, expanding by 167% it reached $16.2 billion raised. Almost half of the amount – $6.7B – was collected by entrepreneurs. According to the agency, the industry is set to more than double in 2015.
U.S. securities regulators approved new crowdfunding rules in October 2015, allowing start-up companies to raise money from non-accredited investors over the internet. Private companies were previously allowed to solicit only accredited investors – those with a net worth of at least $1 million, excluding the value of their homes, or annual income of more than $200,000. The implication of the JOBS Act’s Title III could be revolutionary – it is really democratizing not just access to capital, but also investment for people who are not professional investors.
Now, basically anyone will be able to invest, once the rules go into effect in May 2016. Offerings under the new legislation can be made either via existing broker-dealers, or via a new class of regulated registrants called “funding portals.” These portals have to provide enough information for investors to make an educated decision on investment as well as to conduct background checks on issuers, their executives, and their officers to reduce fraud risk. They also must make issuer information available on their platforms for at least 21 days before securities can be sold, and enable conversations “among the crowd” about each offering in addition to having the option of a question-and-answer format.
When crowd-investing becomes a reality, it could be less about investing in the next billion-dollar company than giving small businesses a boost. There are a lot of people who would prefer to invest in a local coffee shop and support the community. Even the 2016 presidential candidates draw attention to the importance of small businesses to the economy – and crowd-investing could open up innovative ways of supporting local companies and communities, allowing them to profit together. The expansion of crowdfunding to more Americans will not only help widen entrepreneurs’ investment options, it can also reduce barriers to earning capital to the majority of the US population.
Crowdfunding is one of the great things the Fintech revolution has created – and we’ve only hit the tip of the iceberg. Platforms like KickStarter and Indiegogo are just the beginning. The beauty of the crowdfunding model is just how simple it is: you ask for an investment, offer an incentive and let supply and demand do the rest.
StartWise is a crowdfunding platform enables individuals to invest in private companies in return for a fixed percent of company’s quarterly revenue. The company pays its investors until they have received a multiple return on their investment.