Why equity crowdfunding matters

(and why $25 million helps)

As a consultant and analyst in the Finance 2.0 space, I’ve gotten a chance to meet many of today’s leading consumer/technology players. Whether it was from the exploring new technologies and investment methods in my book, Tradestream your Way to Profits, to the various entrepreneurs and experts I’ve had as guests on my podcast to my blog, I’ve been honored to work alongside many of the top thought and business leaders in the space.

There’s a lot of interesting things going on:

• The Auto-Allocators (also called, robo-advisors): The Wealthfront’s , Betterment’s, and Personal Capital’s are changing the way people allocate diversified portfolios. The technology is good, the UI smooth, and the price is right as investors discover that they can automate much of the investment process. I’d put SigFig and Jemstep in here as well as their portfolio dashboards have proven to be great platforms to move into asset management with a free consumer technology solution.
• Build and share your own funds: Motif Investing enables people to easily and cheaply invest thematically, creating a new way to build and manage portfolios. Collective2 (data) and Covestor (portfolio mgmt)
• Crowdsourcing investment ideas: Companies like Estimize are finding that crowdsourced earnings estimates are frequently more accurate than Wall Street.

But, in the past decade I’ve been at this, I haven’t seen anything as transformative to the way we invest our money than equity crowdfunding (see my What is equity crowdfunding?).

Here’s why equity crowdfunding matters

• democratization of capital: With a combination of technology and social media, money is flowing to really compelling investments that given the hierarchies in private equity, would never have seen the light of day.
• new channels, new assets: On the borrowing side, Lending Club created an entirely new asset class of peer to peer loans. Same thing for companies like Pave and Upstart which are changing the ways students fund their college educations (via human capital contracts). Instead of governments treating students like profit centers (as Sen. Warren famously described it), crowdfunding opens up all kinds of alternative channels for worthy opportunities to raise money. On the other side of the coin, that means compelling opportunities for investments with new risk profiles.
• entirely new class of investor: Just look at all the Linkedin profiles that now contain “Angel Investor” in their titles. While investors used to classify themselves as venture investors, we’re seeing a whole new class of people gravitating to equity crowdfunding platforms. Armed with their own work and life experiences, a desire to be more hands-on in their investing, and an interest in participating in early stage companies, equity crowdfunding appeals to investors of all shapes and sizes.
• SMBs are the lifeforce of our economy: Startups and small businesses are the growth engines — both in terms of jobs and revenues — of our economy. It’s frustrating to sit with cash in the bank with an undulating stock market, while reading stories of early stage investors banking huge profits in this generation of Facebooks and Twitters.

We stand at a point in history where faith in our financial markets is weak yet our entrepreneurial spirit has arguably never been higher. I can imagine a world where much of my retirement money is invested very differently than it is today: peer to peer loans, business loans, human capital, and startups. Crowdfunding enables all that to happen.

The long road ahead

Even as Lending Club prepares its IPO and other fintech startups raise lots of money, we’re still in the very early days. As a transformative moment in finance, it’s going to require hard work, diligence, and time for the next class of financial leaders to grow into powerhouses. We’re literally sprinting the marathon of building great Finance 2.0 companies.

Many of the future winners have been spoken for — others have yet to be formed. On the equity crowdfunding side, it’s clear that there’s a handful of firms that are investing to be the future Etrade, Ameritrade, and Schwab. Thinking bigger — these firms can be the future Goldman Sachs, JP Morgans, and Merrill Lynchs.

I’m proud to announce that OurCrowd, the leading equity crowdfunding platform in both Israel and globally, has raised a Series B financing of $25 million (making it the largest raise of its kind in our space). This round was done in democratic fashion with investors from all over the world participating in the future of finance.

We’re joining our portfolio of 36 portfolio companies and thousands of smart investors from around the world to pave the way.

Image credit: StockMonkeys.com