For quite a number of decades, just the financial heavy weight investors were given all the rights to invest in high-growth companies in their initial stages. However, for what has been seen as an industry shaker in the U.S securities laws in almost a century, the SEC is about to give the rest of America equal opportunity as wealthy investors.
This new revolution has been called Equity Crowfunding.
In 2008 as people haggled around for a beer; the narrative on Crowdfunding was given life to. As a matter of fact, $300 million worth of Pabst Blue Ribbon to be exact. Then The Pabst Company was advertised for sale for $300 million.
And just for fun, Mike Migliozzi (An internet savvy chap) registered a domain, created a site which he used to influence regular people to make just small financial commitments to buy Pabst Blue Ribbon Company.
His small stunt to fund the investment gathered a huge number of individuals who made financial commitments to a tune of more than $200 million, however, his endeavor was put to an abrupt stop be the U.S Securities and Exchange Commission (SEC) as they shut him down. crowdfunding sec regulations
Why Was His Mission Shut Down?
According to SEC, investors (were ordinary people) that were literally trampling each other writing check, you and I, opposed to the high society net-worth individuals better known as accredited investors that were then the ‘legitimate’ people who were allowed to invest in such private endeavors.
Due to the adamant stand taken by the SEC’s, ordinary American’s got angered and formed a group that began plotting. They argued that so long as each person was committing just a small substantial amount as little as $25 or $100 they should have the right to invest in companies they like and held the believe they would grow in value.
The group made up of American citizens, took their campaign to Washington and paid lawmakers a visit.
On the other hand, web platforms such as; Indiegogo and Kickstarter made use of a platform that was named donation based or rewards based Crowdfunding that made it possible for common folk fund artistic and charitable projects. Ordinary folk can now fund every project ranging from, civic projects, social causes to dance festivals, quirky films, gadgets and games.
Any contributor who makes cash contribution ends up receiving a T-shirt, a sticker or a ticket to grace a concert. A host of other websites has adapted the pre-purchase module; under this module, in return for funding a small portion of an entrepreneur’s business, the investor is then provided with the entrepreneur’s product be it a new pair of shoes, brand new watch or organic food item.
Crowdfunding is rapidly becoming a huge and successfully business. In 2012, Research firm Massolution conducted research which revealed 308 Crowdfunding platforms all through the planet managed to raise a staggering $2.7 billion.
Many people are hopeful that the market is set to hit the $5 billion mark and probably over in 2013. Because no stock or financial securities change hands with donation-based or rewards-based Crowdfunding and because there exists no financial expectation return, Crowdfunding has been given a clean bill of health by the SEC.
Companies will stand to make millions of dollars and the financier received for their generosity was a T-shirt or perhaps some dried apricots. As much as startups are considered to be risky investments, there are some that end up being quite successful.
Social media platforms Instragram and Tumblr are just two examples of young but vibrant companies that were bought for hundreds of millions and billions of dollars, turning their initial investors to some filthy rich individuals.
Wealthy individuals popularly known as Angel Investors have had their opportune time to invest in such companies for very many years, however, thanks to the necessary noise made by a group of ordinary citizens, regular folk will now be able to invest a small and affordable amount of money in companies they have faith in and this time round, they will receive an ownership stake.
This revolutionary change has been given the name Equity Crowdfunding. There are LITERALLY hundreds of websites now called Funding Portals (waiting on SEC regulation). The two main websites under this module are sites such as CircleUp and RockThePost, these two sites among a host of others are coming up to aid start-up companies with potential investors just like you and me.
Equity Crowdfunding is becoming bigger and louder and if the cues from popular culture are anything to go by interest in start-up investing is skyrocketing.
Shark Tank for instance just recently took over the position as number one America’s most popular TV show on Friday nights. Shark Tank is a show that features investors who take time of their busy schedules to hear pitches from aspiring entrepreneurs that are looking for investment dollars for their product or their business.
In the meantime, Forbes magazine reported that LinkedIn the professionals’ social network has a new group known as CrowdSourcing and CrowdFunding. The group has more than 19,000 members.
The author of the article featured in Forbes on Deborah Jacobs quipped that; “It is impressive that a concept barely in the investor lexicon two years ago has captured the imagination and attention of so many.”
You have all the right to be skeptical, however, you should bear in mind that before online brokerage platforms such as E-Trade surfaced, many “smart” individuals shunned off the idea of regular people going online to trade and invest in stocks. But they are still reeling in shock as E-Trade’s yearly income is more than $2 billion dollars!
Here is a link to some top equity crowdfunding providers
