woensdag 13 oktober 2010

Introducing Equity based Crowdfunding


After connecting with many like minded people in the realm of Crowdfunding (people connected to some of the world’s most profound approaches towards Crowdfunding) , I must conclude that the industry is developing at a fast rate. However are we going in the right direction? Of the 200 Crowdfunding sites out there, not one is offering a straightforward equity model to wheel in believers and the necessary investments needed to spark innovation from the bottom up.

And  this makes me wonder if Crowdfunding in this form will ever becoming mainstream? I’ve never made a secret of my dislikes towards the banking industry, as we know it nowadays, and their inhibiting effect upon investments made in start-ups and SME’s. These effects are mostly due to the  decision criteria banks use in order to assess investment opportunities. With the rise of Crowdfunding a different kind of investor is entering the playing field - the believers. Although they use a more subjective approach towards their investment decision and therefore make more (micro) investments possible. Fact remains that the lack of offering  a return on investments is a major hurdle for the industry to overcome. The reasoning behind this remark is simple – Crowdfunding will never be an equal funding opportunity for entrepreneurs if the potential amount of money available by Crowdfunding is too little.

Concluding that if we want Crowdfunding to be a new way of financing, a more subjective approach towards the capital fulfillment of start-ups and SME’s is needed and the industry has to move towards a model that is based upon equity and return on investment. This all to wheel in the main stream audience. Preferably the industry introduces a model were Crowdfunding becomes an alternative stock exchange, were believers can trade their crowdfunded propositions with each other. I’m sure there is a global interest in such an exchange, that no longer makes the “little” man obsolete, as is happening with “normal” exchanges (as they are dominated by the electronic high volume traders). If the industry is able to come up with a solution for solving the problem stipulated above Equity based Crowdfunding will become the new norm.

I’m very interested what your take is on the industry and if you agree to my opinion, that if we want Crowdfunding to become a  full alternative for other ways of financing such as banks, angel investors or venture capitalist, the industry has to move to an equity based model.

Kind regards,
Thomas Crowd

Ps: Next post will be all about investment decision criteria for believers, so if you are believer in a crowdfund proposition please tell me what your criteria were for investing.


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8 opmerkingen:

  1. As the founder of a crowdfunding site http://peerbackers.com I'd LOVE to be able to offer equity via out site but we cannot due to our government/SEC regulations. There is a group petitioning here to have that changed but I am not holding my breath that it will change. Big bummer as I agree - offering equity would be a huge benefit.

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  2. Deze reactie is verwijderd door de auteur.

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  3. Hey Sally,

    Thank you for your reaction, I know that American legislation is hard to overcome considering equity based crowdfunding. I also saw the petition and to be honest I don't think that the SEC will change it ways, based upon this petition. What I do think is that there are alternatives ways for you and peerbackers to offer quity based crowdfunding in the United States, maybe you are interested in connecting over skype, so that we can discuss this opportunity in depth?

    Kind regards,

    TC

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  4. Hi Thomas,

    Great post. It is really good to hear people like you talking passionately about an equity based crowdfunding model. In the UK we have set up a crowdfunding website called Crowdcube (www.crowdcube.com) that intends to do just that.

    Regulation and legal issues is a significant barrier but we are confident that we have overcome these challenges and plan to launch in the UK in the next few months.

    It would be great for you have a look at the site. It is just a holding page at the moment where you can register you interest. Alternatively you can follow us on twitter - twitter/crowdcube.

    Regards,

    Luke
    Crowdcube
    www.crowdcube.com

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  5. Hi Luke,

    I've taken a closer look at your website and it looks promissing, expecially the equity based model off course. Maybe we can make some buzz about crowdcube using the Crowdfundnews channel as well as dicussing the industry in a broader scheme, hopefully you're interested in that?

    Kind regards,

    TC

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  6. I'm not sure how CrowdCube intend to get around the UK regulations (ie. the Financial Services and Markets Act and EU Prospectus law) but I intend to do it using a legal structure we've got here known as Industrial Provident Societies (actually, since April 2010 they're now officially known at Cooperative Societies and Community Benefit Societies) which has a form of withdrawable share capital that isn't regulated in the same way. For more info see http://uniteddiversity.com/replicate/legal-structures/ and http://www.communityshares.org.uk/resources/ in the coming year we're planning to launch The Crowdfunding Co-op http://crowdfunding.coop to help people set-up and use this legal structure to do community shares issues.

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  7. @United Diversity that looks very promising! I do need some time to read all your links but on face value I must say that this is a perfect solution for offering equity based Crowdfunding. Of course there are still a lot of hurdles to overcome but the legal framework seems to work (my knowledge of UK law is minimal:)). Hopefully you're willing to take some time to answer some of my questions?

    Kind regards,
    TC

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  8. I just read your equity based crowdfunding post and wanted to bring my company to your attention. I'm a co-founder of a new Seattle-based independent film company called Audience Productions that aims to fund feature films via public securities offerings. We just launched a fully-electronic, online IPO (shares are $10 each) to fund an $8MM production. Our offering has been declared effective by the SEC and 18 states including: California, Illinois, New Jersey, and New York. Check us out at www.yourmoneyyourmovie.com

    Thanks,

    Jay

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