We are in the midst of a technology revolution that is changing the way entrepreneurs launch businesses, access and manage information, attract talent and achieve their dreams. The cloud is central to this evolution, and it is facilitating new and unique ways to connect business owners to the resources needed to thrive. Guest contributor Richard Swart, CSO of NextGen Crowdfunding, is a leading authority in the crowdfunding industry, which is undergoing an exciting transformation that will change the way small businesses pursue and access capital — a consistent pain point in the entrepreneurial journey. If you plan to attend this year’s SXSW, check out his speaking engagement as part of the NextGen House Crowdfunding Launch Fest at Maggie Mae’s. His commentary is another proof point that now is an incredibly exciting time to be a small business owner.
Meet The Future of Equity Crowdfunding
By Richard Swart, CSO of NextGen Crowdfunding
In a lab long ago, the first computer scientists leveraged the communications functionality of a new tech infrastructure, called ARPANET, to send a message. They likely had no idea what their innovation would create for the future of technology. Years later, as access to ARPANET was expanded and became the Internet as we know it, this same base communications functionality has empowered Twitter, Facebook, email, and other digital communication tools. The evolution from those early days to the globally and socially connected world we live in today, is unprecedented.
It’s through this dynamic that today’s disruptive models in business financing are now igniting. Access to capital — once limited by special access to corporate entities, banks, and wealthy investors — has now been democratized. A new era of financing is happening now, sparking a changing economy defined by access to money for those seeking the American dream.
Among the most exciting aspects of this future of finance is the power of equity crowdfunding. Rewards-based crowdfunding platforms have already helped to give opportunity and access to capital for entrepreneurs across multiple industries. As the new Title III of the JOBS Act — the 2012 federal law to help encourage small business funding in the United States — moves into effect this year, the democratization of finance will reach new heights. Everyday people can now become everyday investors who can receive equity stakes in return for crowdfunding contributions, for the very first time in history.
But, it is not without challenges and risks. Successful outcomes require more than just due diligence. Entrepreneurs and investors must be and remain well-educated and well-versed, with trustworthy, reliable, and experienced resources. Thought leadership will be critical in this emerging and fast-moving market. It’s equally important to keep an eye on the future. Here’s a look at what’s ahead:
- Regulation Consideration: Title III allows investment in startups by individuals regardless of their income or net worth for the first time in nearly 80 years. For both entrepreneurs and investors, Title III is predominantly in your favor. But it may be important to be aware of additional supporting legislations, both at the state and national levels in the coming years. This won’t slow down equity crowdfunding’s potential, but it is where having solid resources for information and guidance can count.
- The Changing Face of Crowdfunding: As equity crowdfunding grows and matures, investment opportunities, companies and entrepreneurs will increase and evolve. Currently, a large number of tech and web startups dominate the crowdfunding industry. Equity crowdfunding has the potential to help additional businesses in many sectors; small mom-and-pop shops, restaurants, and neighborhood stores. And minority and women-owned businesses will continue to benefit from the democratization of finance through crowdfunding. Explore your options and be open to the potential of these new areas the industry will reach.
- Consolidation in the Market: With Title III leading to increased deal flow in equity crowdfunding, an influx of upstart platforms is sure to follow. We’ll likely see a flurry of new platforms and then rapid consolidation in the market. Platforms will emerge but larger, established financial institutions will also likely seek a foothold in the equity crowdfunding space. It’s not outside of the realm of possibility that we could see a Goldman Sachs or JP Morgan buy a stake in an equity crowdfunding platform. The corporate interest in crowdfunding as a financial tool has only just begun, and this is sure to grow with the new Title III rules.
This is an exciting time for investors and entrepreneurs considering equity crowdfunding. As the new era of crowdfunding arrives, information will be critical as we all maneuver in this new financing world. I will be speaking about all of these topics at the “Ignition 1.0” Crowdfunding Launchfest at SXSW later this month and encourage anyone interested in participating to reach out via the comments below or at NextGenCrowdfunding.com.