Equity Crowdfunding in Review
Equity crowdfunding occurs when people contribute money to a business in return for shares in that company. In America, a less inclusive version of this has historically been common practice amongst wealthy accredited investors, capable of investing several thousands of dollars, or more), in multiple business deals at one time. Being accessible only to the rich however, isn’t very “American,” now is it?
This is why regulations signed in 2012, which came into effect in 2016, made the Jumpstart Our Business Startups Act (the “JOBS Act”) a law. This law allows businesses to use online portals to raise money from non-accredited investors – “non rich people” to say it another way. These unaccredited investors account for approximately 97% of the United States population. Prior to the JOBS Act, any person willing to invest capital into a private company, in exchange for equity, was required to be an accredited investor, or transact through regulated brokers. Unfortunately, this requirement deliberately restricted everyday people from participating and introduced barriers to mass participation in funding businesses.
In 2016, Title III of the JOBS Act came into effect, democratizing access to investing for all Americans. Most people can’t afford to invest $50,000 into one company, but still have a desire to invest, but typically on a much smaller scale. Equity crowdfunding has been the bridge for everyday people to enter the same market the rich play in. The JOBS Act has successfully increased the market activity, by reducing the regulatory requirements for startups going public, or for businesses raising funds in private markets. Overall, the JOBS Act enhances the ability of startups and companies to offer equity and raise capital with reduced transaction costs, since the process does not require the involvement of venture capitalists. Also, businesses can now reach a world of potential investors, 97% of the US population to be exact, who were previously denied entry. The goal of the JOBS Act was to allow ordinary citizens simple access to online portals to invest in entrepreneurs and ideas they believe in, in exchange for ownership in that company. A pretty good deal!
Crowdfunding State: Past to Present
Since the JOBS Act came into effect, businesses have experienced exciting results. In 2017, there were numerous million-dollar projects, such as the Antonia Saint New York, Sonic Soak on Kickstarter and Indiegogo, respectively. Currently, the barriers to wealth creation are low as the JOBS Act continually promotes equality in the world of investing. During Kickstarter’s eighth birthday, pledges exceeded a whopping $3 billion. In the same year, online portals enhanced their innovations, including the introduction of blockchain investments and initial coin offerings (ICOs), making them more attractive to a diverse type of entrepreneurs.
In 2019, the rapid development and acceptance of blockchain technology and token sales will remain in the headlines. A notable characteristic of the current crowdfunding wave is the increased investment powered by social media and the Internet.
- As of October 2018, projects worth $419 million have been launched on Kickstarter.
- Over 156,000 campaigns have been launched on Kickstarter.
- Blockchain startups have been among the highest funded, with a Cayman Islands startup, Block.one, raising $4 billion in June this year, exceeding the biggest initial public offering in 2018. The startup doesn’t even have a live product.
Equity crowdfunding has gained significant traction in 2018 and signs continue to suggest it will continue to do so in 2019.
Crowdfunding 2019 Predictions
Undoubtedly, 2018 was an intriguing year for crowdfunding and the digital assets sector. The trends during the period led to the introduction of rules and regulations in some countries, while the United States decided to still rely on the JOBS Act to regulate equity crowdfunding, even with the rapid growth of ICOs.
The number of crowdfunding platforms remains largest within the United States market. This trend will continue to expand coverage for more, everyday investors. Obviously, everyone is seeking to invest in giants like the next Netflix or Uber. With the JOBS Act, it is now possible for everyday people to invest in early-stage startups in exchange for equity positions.
Crowdfunding is viewed as a means of sharing new products and ideas with the world. The most passionate advocates are able to invest and secure equity. That’s smart money.
Equity crowdfunding, backed by the JOBS Act, will continue to offer practical solutions for people looking to raise capital and those with the willingness to invest. The investment option helps to build a roadmap in the creation of generational wealth. Equity crowdfunding has begun to develop and mature as an industry; however, there is still a lot to be explored in the sector, considering that the JOBS Act only came into full operation in May 2016. The emergence of new technology, blockchain and cannabis startups to name a few, continues to signal towards a promising 2019 for equity crowdfunding.