Below is an article by Main Street entitled “Crowdfunding Moves From Fun To Profit”
Crowdfunding Moves From Fun To Profit
By: Dana Blankenhorn, Main Street
Nov 19, 2013
The big change isn't the crowdfunding rules, per se, but rather the lifting of an 80-year old ban on any solicitation of investors. In some ways this isn't a big deal – if you want people to back your band or doughnut shop for music or food, your Kickstarter or Indiegogo page is already an ad. But for real investments, in which equity is the commodity and profit the reward, this is a huge deal.
Judd Hollas, founder and chief executive at angel investing platform EquityNet has already raised over $200 million in equity online and recently studied 1,000 companies that were early adopters of crowdfunding. He found they were different from other companies seeking funding.
"They were largely not a good fit for bank lending, because they were based on intangibles," he said, or didn't have the huge growth expectations venture capitalists are looking for. Crowdfunding, in other words, is bringing new types of companies to the funding market, expanding the pie.
These companies are also higher-risk than anything that has been brought to non-accredited investors before, Hollas warned. "The biggest risk," he said, "is not business failure but a liquidity event," where new investors are brought in, reducing the share of the deal held by other investors and how the investors might receive a return in the case of a buy-out.
The rule still has to finish its 90-day public comment period, which will conclude in January. Then final rules have to be drafted and published, meaning you're still not going to see ads for these investments until early 2015.