A Revolution in Small Business Financing is Coming in 2016
As you may know, the crowdfunding movement has been in a white hot growth streak recently doubling year over year. In 2016, Forbes reports that it is expected to surpass venture capital funding.
Read that again: crowdfunding surpasses venture capital.
Check out that Forbes article to get the stark details as well as the venture industry response to the coming industry regulation change (Title III of the JOBS Act) on May 16.
An entirely new investor class of over 250 million people will be suddenly allowed to invest in start-ups on that date. This has previously only been an option for the wealthy or high-income earners.
But with proven success in crowdfunding technology, marketing, and campaigns, we’re now about to witness a vast flood of small capital investments into private companies through platforms like WeFunder.
The world of start-up investing is extremely risky, which is why for 80 years the SEC hasn’t permitted grandma and other small investors from risking their limited capital on potential business failures.
What’s interesting though is that the new rules and platforms build in transparency in the reporting of investment offerings, create simple relationships between the crowd and the company, and encourage trust-building through co-investing opportunities with other sophisticated investors.
WeFunder, for instance, has what it calls Investment Clubs, or groups of knowledgable investors that focus their investments on projects in a certain industry. As a single small investor, you’ll be able to tag along with that group’s investments as it tries to pick good opportunities.
As the rules are written now, an equity investment in a crowd-funded investment round will not provide an exit opportunity until that company has an acquisition or IPO.
However, new legislation is being considered in Congress aimed at expanding liquidity in the secondary market for equity shares in private companies. This would allow for the creation of so-called ‘venture exchanges’, or markets where shareholders in a company could see an earlier exit opportunity by selling their shares to new investors.
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