CROWD FUNDING SPOTLIGHT

On July 10th 2013, just three months after taking office, Mary Jo White, Chairman of the SEC, called a portion of the JOBS Act to vote, which passed 4-1 (effective September 23, 2013). This SEC vote finalized rulings around Title II of the JOBS ACT, which lifts the longtime ban on public solicitation and creates a new type of offering  call 506c, that essentially allows companies, for the first time in over 80 years, to freely advertise they are fundraising to the general public.

 

What This All Means

This ruling paves the way for companies looking to raise capital via crowd funding to use a platform to advertise/promote their offering to Accredited Investors. The more significant implication of the Title II Ruling is that companies on crowd funding platforms can soon, but not today, begin promoting their investment offering outside of a verified accredited investor community online, on places like social networks, as long as that promotion leads back to a platform that verifies accredited investors before giving them access to the investment offering.

 

a

In any new market, especially one that creates an entirely new capital market and asset class, there’s going to be noise and lots of would-be entrants. It’s important to keep in mind that crowd funding of securities is not another internet market niche, it’s an entire new Capital Market, and will create a new investor class. Here are some tantalizing statistics:

  • Estimated U.S. market for Title II crowd funding (accredited investors) $20 Billion

  • Estimated U.S. market for Title III crowd funding (non-accredited investors): $2 Trillion 

  • Long-term investment capital held worldwide: $200 Trillion

 

Whatever percentage of long-term asset allocation that shifts towards crowd funding, one thing is clear: just like in the investment banking industry, there will be room for several big crowd funding portals as wells as dozens of niche players. Most likely, the winners will be the ones that can execute well on their own strategy, deeply engage an active investor base, and provide quality deals for their community to invest in.