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Crowdfunding CROWDFUNDING - THE FUTURE OF INVESTING 1 by The Wall Street Daily Research Team IT’S FINALLY HERE… ALMOST The Securities and Exchange Commission (SEC) has made history. In an exciting turn of events, it approved the final regulations to open crowdfunding to non-accredited investors across the globe… Which means that, 60 days after the publication of the regulations in the Federal Register (FR) – the official “journal” of the U.S. government – everyday retail investors will be able to legally invest in startup companies through the crowdfunding platforms that have gained fame in recent years. The final rules - called Regulation A+ - will now allow fledgling companies to provide securities to ordinary investors. Companies can now raise as much as $50 million through such offerings, and retail investors can pony up some dough to get a piece of the action… CROWDFUNDING - THE FUTURE OF INVESTING 2 Now, non-accredited investors can only invest up to 10% of their net worth or annual income in securities, but this is more of a blessing than a curse, as it provides investor protection in a budding industry that will take a bit of time to fully comprehend. In case you couldn’t tell, I’m extremely excited about Like “social media,” this new wrinkle in the crowdfunding universe, and throughout the next few pages, you’ll understand crowdfunding is another one why… of those buzz phrases that What Is “Crowdfunding”? has quickly inserted itself into the mass lexicon. Ever since the advent of the internet, people have been looking for all sorts of opportunities to raise and make money from it. “Crowdfunding” is probably the most mature and sophisticated culmination of these efforts so far. Like “social media,” crowdfunding is another one of those buzz phrases that has quickly inserted itself into the mass lexicon. CROWDFUNDING - THE FUTURE OF INVESTING 3 So what is crowdfunding and why is it so important? According to one definition, it’s “the collective cooperation, attention, and trust by people who network and pool their money and other resources together, usually via the internet to support efforts initiated by other people or organizations.” In other words, it’s a way for people who need money for projects or businesses to raise money from people willing and able to lend it. Nothing fancy there. As you’ll notice, however, such efforts completely bypass traditional lending institutions - making it possible for individual lenders to connect directly with borrowers. With banks absolutely skittish about lending and interest rates near zero, crowdfunding presents an enormous opportunity for startups and niche interests to receive the capital they need… and for lenders to reap (potentially) outsized returns. Small wonder why the crowdfunding sector has grown from less than $2 billion in 2009 to $8 billion in 2013. In 2014, that number doubled to $16 billion, and more than doubled again in 2015 to more than $34 billion. So whether you’re an investor or entrepreneur, it makes solid sense to understand the opportunities crowdfunding presents…. CROWDFUNDING - THE FUTURE OF INVESTING 4 But first, let’s look at the three types of crowdfunding classes: DONATION-BASED: Think of this as the more “emotional” side of the industry. People who make donations through crowdfunding usually do so out of goodwill, the thrill of taking part in an exciting project, or just helping something they’re passionate about. If a product is being produced, donors will often receive one for free. EQUITY-BASED: This is the sharp end of crowdfunding, typically used for startups – and ultimately, the only area worthy of consideration for a true investor. Investors are offered equity and partnership in an enterprise in return for upfront cash to get it started. PEER-TO-PEER (P2P): This one most closely resembles the traditional lender/borrower model. In this case, lenders give money to borrowers through a website in exchange for an interest payment. The website (“platform”) acts as the middleman holding the IOU. So what kinds of things can you help finance (or get financing for) through crowdfunding? For starters: clothing, movies, music, gadgets, art projects, videogames, technology programs, charities, businesses… No matter what your passion or interest is, chances are there’s a crowdfunding opportunity for it. In fact, there are now so many lending and borrowing opportunities for almost every conceivable niche interest, it’s almost impossible to keep track of them all. CROWDFUNDING - THE FUTURE OF INVESTING 5 Some Major Players And new platforms seem to keep popping up every day; right now, there are over 1,000 to choose from. Even so, there are a few big ones anyone interested in crowdfunding should be aware of: KICKSTARTER: Nearly a household name, it’s the earliest and biggest of the crowdfunding sites. Operating on the donation-based model, it allows creative types to seek funding for things like art instillations or to pre-sell music albums. According to the latest figures, 7,500 projects have received $1 billion in funding through the site so far - making it the granddaddy of crowdfunding. INDIEGOGO: Another early arrival to the scene. While Kickstarter focuses strictly on creative endeavors, Indiegogo donors can give to almost any kind of project, including charities or individuals in financial need. ANGELLIST: Are you a tech startup needing a shot in the arm from seasoned venture capitalists? AngelList may be for you. While it once pretended to be above the whole crowdfund-fray, catering to more- established startups, AngelList has begun opening its doors to tech startup deals. If you’re interested in owning or selling equity, you’ll want to take a look. CROWDFUNDER: If you’d prefer to let experienced angel investors and venture capitalists fund your company, then this is the site for you. Crowdfunder allows startups (and small, already-established businesses, as well) that are domiciled in the United States to raise funding by offering equity, debt, or revenue-based securities (think royalties). It got a late start to the game, but has caught up quickly and now offers some of the most exciting investment opportunities out there. ROCKETHUB: Like Kickstarter and Indiegogo, donors can give to a wide variety of creative projects. But what sets RocketHub apart are its FuelPad and LaunchPad programs, which help campaign owners connect with promotion and marketing partners to magnify a campaign’s success. CROWDFUNDING - THE FUTURE OF INVESTING 6 SOMOLEND: With one foot in the traditional lending world, Somolend partners with local banks, individuals and business associations to provide loans to small businesses. If “keeping it local” is your thing, this one is worth checking out. The Way of the Future With the U.S. financial sector still on shaky ground and lending tighter than ever, crowdfunding has opened up a world of opportunity for those eager to launch exciting enterprises and investors looking for a much better rate of return. What’s more, both parties now have a blizzard of options they can choose from. It’s a truly breathtaking development that promises to upend what has far too long been a stodgy and rigid sector preventing borrower and lender from taking a mutual interest in each other. Risks will remain, but as the sector matures, the big wrinkles will become progressively smoother as platforms keep responding to the mutual needs of investors and entrepreneurs. Bottom line: Crowdfunding is the venture capital of the future, and you’ve got a chance to get in on the ground floor. Good investing, The Wall Street Daily Research Team CROWDFUNDING - THE FUTURE OF INVESTING 7 TRUTH In a world of liars, the starts here. Nothing published by Wall Street Daily should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Wall Street Daily should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2016 Wall Street Daily, LLC. All rights reserved. 105 West Monument Street, Baltimore, MD 21201 // T. 877.242.1730 or 410.230.1266 F. 410.223.2650 12022015.
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