The Equity Crowdfunding Juggernaut
Aside from my own personal favorite, linguini and clams, have you ever pondered the question as to identifying the most important invention of the last 500 years? I have, and have basically narrowed it down to the steam engine and the electrical grid. The steam engine took us from manpower to horse power ushering in the industrial revolution. The electrical grid gave us an interconnected network that delivered electrical power from sources to demand centers. A by-product of the electrical grid is the internet.
The internet has revolutionized communication, obliterating geographic obstacles. It is the glowing example of what sustained investment in research and development can achieve in reshaping the infrastructure. The internet has changed the way we think about and respond to the problems of the universe. The internet has changed the way we gather and view data while spawning countless new technologies, creating opportunity everywhere. From my own perspective the internet has shaken the financial industry to its very core.
One of the areas the internet has addressed is the way ideas and companies are funded today. Out of the ashes of the financial crisis of 2008, crowdfunding has emerged to fill the void left by risk averse investment banks and the crass manipulation of publicly listed SME’s on recognized stock exchanges.
The next google
While investors dream of being early round investors in the next google, the operative word is “dream”. Finding real gems in the stock market today and building great companies there, is akin to walking the gauntlet and then finding the needle in the haystack. Making matters worse is the daily discovery of scandals, namely, the Libor rate, questionable mortgages, fraudulently packaged CDO’s, high frequency trading, the list goes on. Regulators are impotent to act due to a lack of political will and a system that incentivizes the gatekeepers to look the other way.
Then we have short selling. Short selling in a nutshell is borrowing shares of a company that you don’t own and selling them with the intention of buying them back at a lower price for profit. In theory this practice is suppose to provide integrity to the market of a given financial instrument. It’s a kind of check and balance to the integrity of an investments valuation. The reality is, many startups and young companies don’t have the strong sponsorship of an investment bank behind them to fend off attacks from speculators who prey on these companies through short selling. You can have a perfectly good company with committed management and a viable market and a few well placed negative rumors from fictitious accounts on message boards (see Nobilis Health Corp. NYSE: HLTH) or a much more insidious source as investigative reporter David Dayen illustrated in his breath-taking article in “The Intercept” Big Players, Little Stocks and Naked Shorts. These practices can destroy a great enterprise and investment.
Equity crowdfunding levels the playing field
Crowdfunding on the other hand has emerged as a simple, effective and transparent method of funding entrepreneurs ideas and companies. It provides investors with a much more democratic method of identifying great investment opportunities, while removing most of the obstacles attributed to unethical speculators and lax oversight.
The regulated equity crowdfunding platform/portal allows investors to bypass the middleman in the way of financial advisors and deal directly with the company itself. That is not to say there isn’t work to be done by the investor. One must always perform due diligence before investing, but it removes the possibility of conflicting interests or a quid pro quo between advisor and the investment itself. More important, while still a regulated business, the onus of full disclosure lies directly with the company seeking the funding on the crowdfunding platform. This makes it straight forward for the investor who has formulated a set of criteria to assess the opportunity in an equity crowdfunding investment.
Never before have entrepreneurs had so much control in their companies outcome and never before have investors had the opportunities in exciting startups presented to them. Opportunities such as Oculus VR a crowdfunding sensation bought out by Facebook for $2bn, or Pebble E-Paper Watch that raised over $10mn in 37 days and delivered their first round of smart watches upon completion of funding.
Equity Crowdfunding truly is a win win.
Co-Founder Crowd Equity Capital